IA Quiz - Effective Interest Method

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1. Bond issue cost

Is amortized using the interest method over the life of the bonds payable
2. The market price of a bond issued at a discount is the present value of the principal
amount at the market rate of interest
Plus the present value of all future interest payments at the market rate of
interest
Plus the present value of all future interest payments at the rate of interest stated
on the bonds
Less the present value of all future interest payments at the market rate of
interest
Less the present value of all future interest payments at the rate of interest stated
on the bonds Write to
3. What is the effective interest rate of a bond measured at amortized cost?

The interest rate that exactly discounts estimated future cash payment
through the expected life of the bond or when appropriate, a shorter period
to the net carrying amount of the bond
The stated rate of the bond
The interest rate currently charged by the entity or by other for similar bond
The basic risk-free interest rate that is derived from observable government bond
prices
4. The discount on bond payable is charged to interest expense

Using the effective interest method
5. When the bonds are sold at a premium and the effective interest method is used, at each
subsequent interest payment date, the cash paid is
Less than the effective interest
Greater than the effective interest
More than if the bonds had been sold at a discount
Equal to the effective interest
6. Under the effective interest method of amortization, the interest expense is equal to
The stated rate of interest multiplied by the face mount of the bonds
The market rate of interest multiplied by the beginning carrying amount of
the bonds
The stated rate of interest multiplied by the beginning carrying amount of the
bonds.
The market rate of interest multiplied by the face amount of the bonds.
7. In theory, the proceeds from the sale of a bond will be equal to

The present value of the principal due at the end of the life of the bond plus
the present value of the interest payments made during the life of the bond
The sum of he face amount of the bond and the periodic interest payments
The face amount of the bond
The face amount of hte bond plust the present value of the interest payments
made during the life of the bond
8. Which of the following is true for a bond maturing on a single date when the effective
interest method of amortizing bond discount is used?
Interest expense as a percentage of the bond carrying amount varies from period
to period
Interest expense increases each six-month period
Interest expense remains constant each six-month period
Nominal interest rate exceeds effective interest rate
9. If bonds are issued at a premium, this indicates that

The yield and nominal rates coincides
no necessary relationship exists between the two rates
The yield rate exceeds the nominal rate
The nominal rate exceeds the yield rate
10. When bonds are sold at a discount and the effective interest method is used, at each
subsequent interest payment date, the cash paid is
Equal to the effective interest
Less than the effective interest
More than if the bonds had been sold at a premium
More than the effective interest
11. How should an entity calculate the net proceeds to be received from bond issuance?
Discount the bonds at stated rate of interest
Discount the bonds at the stated rate of interest and deduct bond issuance cost
Discount the bonds at the market rate of interest and deduct bond issuance
cost
Discount the bonds at the market rate of interest
12. Bonds usually sell at
Face amount
Maturity amount
Present value
Statistical expected value
13. Which statement is true about bonds payable?

The specific provisions of a bond issue are described in a document called
bond indenture
The initial sale price of bond represents the sum of all future cash outflows
Periodic interest expense is the stated interest rate times the amount of bond
outstanding
Bonds will sell for a premium when the market rate of interest exceeds stated
rate
14. What is the rate of interest actually incurred?

Yield rate
Market rate
Market, yield, or effective rate
Effective rate
15. For a bond issue which sells for less than face value, the market rate of interest is
Less than the rate stated on the bond
dependent on rate stated on the bond
higher than rate stated on the bond
equal to rate stated on the bond
16. What is the market rate of interest for a bond issue which sells for more than face value?
Equal to rate stated on the bond
Higher than rate stated on the bond
Less than rate stated on the bond
Independent of rate stated on the bond
17. When bonds are sold at a discount and the effective interest method is used, at each
interest payment date, the interest expense:
Increases
18. An entity issued a bond with a stated rate of interest that is less than the effective
interest rate. The bond was issued on one of the interest payment dates. What should
the entity report on the first interest payment date?
A debit to premium on bonds payable
An interest expense that is less than the cash payment made to bondholders
An interest expense that is greater than the cash payment made to
bondholders
A debit to discount on bonds payable
https://quizlet.com/205372158/bonds-payable-ch-14-flash-cards/
19. When the effective interest method is used, the periodic amortization would
Increase if the bonds were issued at a discount.
Increase if the bonds were issued at either a discount or a premium
Decrease if the bonds were issued at a premium
Increase if the bonds were issued at a premium
20. What is the interest rate written on the face of the bond?
Coupon rate
Stated rate
Nominal rate
Coupon rate, nominal rate or stated rate
21. Interest expense is

OThe stated rate times the face amount of the bond
O the effective rate times the face amount of the bond
OThe stated interest rate times the carrying amount
O The effective rate times the carrying amount of the bond during the interest period.
22. Under international accounting standard, the valuation method used for bond payable is
discounted cash flow valuation at yield rate at issuance
Historical cost
discounted cash flow at current yield rate
maturity amount
https://www.coursehero.com/file/p3l3bqu/Under-international-accounting-standard-the-valuation-
method-used-for-bonds/
23. When bonds are sold at a premium and the effective interest method is used, at each
interest payment date, the interest expense
increases
Remains constant
is equal to the change in carrying amount
decreases
24. When interest expense for the current year is less than the interest paid, the bonds were
issued at
A premium
Cannot be determined
A discount
Face amount
25. When interest expense for the current year is more than the interest paid, the bonds
were issued at
A premium
Cannot be determined
A discount
Face amount

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1. Bond issue cost

3. What is the effective interest rate of a bond measured at amortized cost?

4. The discount on bond payable is charged to interest expense

7. In theory, the proceeds from the sale of a bond will be equal to

9. If bonds are issued at a premium, this indicates that

13. Which statement is true about bonds payable?

14. What is the rate of interest actually incurred?

21. Interest expense is

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