Asked by Sallye Ferguson on Jun 11, 2024
Verified
Which of the following is incorrect with regard to the Davis bonds when the straight-line method of amortization is utilized?
A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued.
B) The semiannual interest expense is $1,095.
C) The book value of the bonds increases $45 every six months.
D) The semiannual interest expense is less than the semiannual cash interest payment.
Straight-Line Method
A method of calculating depreciation and amortization that evenly distributes the cost of an asset over its useful life.
Market Rate
Market Rate is the prevailing interest rate available in the marketplace on loans, savings, or investments.
Coupon Rate
The annual interest rate paid by a bond's issuer to the bond's holders, usually expressed as a percentage of the bond's face value.
- Understand the effect of issuing bonds at a premium or discount on interest expenses and the application of the effective-interest technique.
- Implement the techniques of bond amortization and identify their influence on interest costs and the carrying value of bonds.
Verified Answer
Learning Objectives
- Understand the effect of issuing bonds at a premium or discount on interest expenses and the application of the effective-interest technique.
- Implement the techniques of bond amortization and identify their influence on interest costs and the carrying value of bonds.
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