Question

Which of the following is correct about the effective-interest method of amortization? Group of answer choices:...

Which of the following is correct about the effective-interest method of amortization?

Group of answer choices:

It must be used to amortize a discount or premium under US GAAP.

The amount of amortization of a discount decreases from period to period.

The amount of amortization of a premium decreases from period to period.

The effective-interest method applied to investments in debt securities is different from that applied to bonds payable.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The Answer is It must be used to amortize a discount or premium under US GAAP.

Explanation:

1) Under US GAAP, Effective-interest method of amortization will be used to amortized the discount or premium over the period of bonds rather than using straight line method.

2) Option 2,3 are not correct because amount of amortization of a premium or discount will increases from period to period.

3) Option 4 are not correct because effective-interest method applied to investments in debt securities is not different from that applied to bonds payable. So, Same method will be used under both categories.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Effective Interest Amortization On January 1, Eagle, Inc., issued $950,000 of 9%, 20-year bonds for $1,016,500...
Effective Interest Amortization On January 1, Eagle, Inc., issued $950,000 of 9%, 20-year bonds for $1,016,500 yielding an effective interest rate of 8%. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the premium. Required a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar. b. Prepare the journal entry for the bond issuance on January 1....
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the...
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the bonds which payable annually on January 1. Monty uses the effective-interest method to amortize bond premium or discount. A) use the effective-interest method to amortize bond prem/disc. record issuance on bond. Jan 1 2020 cash - Discount on bonds payable- bonds payable- B) Record accrual of interest/ discount amortization Dec31,2020 Dec 31 Interest expense - discount on bonds payable - interest payable - C)...
Recording Entries for AFS Debt Securities— Effective Interest Method On January 1, 2020, Jules Company purchased...
Recording Entries for AFS Debt Securities— Effective Interest Method On January 1, 2020, Jules Company purchased for cash, $95,000 bonds (nineteen $5,000 bonds) of Android Corporation at a market rate of 6%. The bonds pay 6.5% interest, payable on a semiannual basis each June 30 and December 31, and mature on December 31, 2024. The bonds are classified as available-for-sale securities. The annual reporting period of Jules Company ends December 31. Assume the effective interest method of amortization of any...
Q1) Consider the following statements: Statement 1. When amortizing a bond discount, the bond’s amortized cost...
Q1) Consider the following statements: Statement 1. When amortizing a bond discount, the bond’s amortized cost decreases each period as the interest expense increases. Statement 2. When amortizing a bond premium, the bond’s amortized cost increases each period as the interest expense increases. Select one: a. Neither of the statements is correct b. Only statement 1 is correct c. Only statement 2 is correct d. Both statements are correct Q2) A type of amortization method used to amortize bond discount/premium...
Exercise 9-62 (Algorithmic) Completing a Bond Amortization Table (Effective Interest Rate Method) Cagney Company sold $220,000...
Exercise 9-62 (Algorithmic) Completing a Bond Amortization Table (Effective Interest Rate Method) Cagney Company sold $220,000 of bonds on June 30, 2010. A portion of the amortization table appears below. Period Cash Payment (Credit) Interest Expense (Debit) Discount on Bonds Payable (Credit) Discount on Bonds Payable Balance Carrying Value 12/31/11 $9,900 $10,177 $277 $2,340 $217,660 6/30/12 9,900 10,230 330 2,010 217,990 12/31/12 ? ? ? ? ? 1. Indicate the stated interest rate on these bonds.   % 2. Calculate the...
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2017, Kim Company issued $500,000 of...
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2017, Kim Company issued $500,000 of five‑year, 12 percent bonds payable for $538,609, yielding an effective interest rate of ten percent. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and premium amortization (effective interest method) on June 30, 2018, and (c) the semiannual interest payment and premium amortization on December 31, 2018....
Recording Entries for HTM Debt Securities— Effective Interest Method On January 1, 2020, Baker Corp. purchased...
Recording Entries for HTM Debt Securities— Effective Interest Method On January 1, 2020, Baker Corp. purchased $32,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method....
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2009, Kay Company issued $600,000 of...
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2009, Kay Company issued $600,000 of five-year, 13% bonds payable for $650,798 yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and premium amortization (effective interest method) on June 30, 2010, and (c) the semiannual interest payment and premium amortization on December 31, 2010. Round amounts...
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2014, Blair Company issued $600,000 of...
Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2014, Blair Company issued $600,000 of 20-year, 11 percent bonds payable for $480,015, yielding an effective interest rate of 14 percent. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and discount amortization (effective interest method) on June 30, 2015, and (c) the semiannual interest payment and discount amortization on December 31, 2015....
Which of the following statements is CORRECT? Group of answer choices The risk that cashflows will...
Which of the following statements is CORRECT? Group of answer choices The risk that cashflows will have to be reinvested in the future at lower rates, pushes investors to require higher rates from shorter term bonds, compared to similar longer term bonds. The longer the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates. All of the above are correct. None of the above is correct.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT