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Bonds / Interest Expense

1. The issuance price of a bond does not depend on the
a. face value of the bond.
b. riskiness of the bond.
c. method used to amortize the bond discount or premium.
d. effective interest rate.

2. Which of the following is true of a premium on bonds payable?
a. It is a contra-stockholders' equity account.
b. It is an account that appears only on the books of the investor.
c. It increases when amortization entries are made until it reaches its maturity value.
d. It decreases when amortization entries are made until its balance reaches zero at the maturity date.

3. When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the
a. actual amount of interest paid.
b. book value of the bonds multiplied by the stated interest rate.
c. book value of the bonds multiplied by the effective interest rate.
d. maturity value of the bonds multiplied by the effective interest rate.

4. Interest expense is:
a. The effective interest rate times the amount of the debt outstanding during the interest period.
b. The stated interest rate times the amount of the debt outstanding during the interest period.
c. The effective interest rate times the face amount of the debt.
d. The stated interest rate times the face amount of the debt.

Solution Preview

1. The issuance price of a bond does not depend on the
a. face value of the bond.
b. riskiness of the bond.
c. method used to amortize the bond discount or premium.
d. effective interest rate.

Answer: C
The method used to amortize the bond discount or premium will be used only after the bond has been issued.

2. Which of the following is true of a premium on bonds payable?
a. It is a ...

Solution Summary

This solution is comprised of a detailed explanation to answer regarding bond and interest expense of bonds.

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