The following questions dealing with long-term liabilities are adapted from questions that previously appeared on Certified Management
Question:
Questions 1 and 2 are based on the following information. On January 1, Matthew Company issued 7% term bonds with a face amount of $1,000,000 due in 8 years. Interest is payable semiannually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6%.
1. The bonds were issued on January 1 at
a. a premium.
b. an amortized value.
c. book value.
d. a discount.
2. Assume the bonds were issued on January 1 for $1,062,809. Using the effective interest amortization method, Matthew Company recorded interest expense for the 6 months ended June 30 in the amount of
a. $35,000
b. $70,000
c. $63,769
d. $31,884
3. A bond issue sold at a premium is valued on the statement of financial position at the
a. maturity value.
b. maturity value plus the unamortized portion of the premium.
c. cost at the date of investment.
d. maturity value less the unamortized portion of the premium.
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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