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Intermediate Accounting II exam 3

The interest rate actually earned by a bondholder who buys the bond at a discount, as compared to the stated rate on the bond is:
Higher Lower
a. yes no
b. yes yes
c. no yes
d. no no
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Terms in this set (30)
Bonds with par value of $500,000 carrying a stated interest rate of 6% payable semiannually
on March 1 and September 1 were issued on July 1. The proceeds from the issue amounted to
$510,000. The best explanation for the excess received over par value is:
A. the bonds were sold at a premium.
B. the bonds were sold at a higher effective interest rate.
C. the bonds were issued at par plus accrued interest
D. no explanation is possible without knowing the maturity date of the bond issue.
If bonds are issued initially at a premium and the effective interest method of amortization is used, interest expense in the earlier years will be:
a. greater than if the straight-line method were used
b. greater than the amount of the interest payments
c. the same as if the straight-line method were used
d. less than if the straight-line method were used
King Cole Corporation markets a 10-year bond issue dated January 1, 2001. The bonds pay 9% interest semi-annually on January 1, and July 1. If these bonds are sold on September 1, 2001 how many months accrued interest must be paid by the purchaser and over how many months would any premium on the bonds be amortized?
Months of Amortization
Accrued Interest Period
a. 8 120 months
b. 8 112 months
c. 2 120 months
d. 2 112 months
A bond premium should be reported in the balance sheet:
A. at the present value of the future reduction in bond interest expense due to the premium.
B. as a deferred credit.
C. along with other premium accounts such as those resulting from stock transactions.
D. as a direct addition to the face amount of the bond.