On January 1, 2013 ABC Company, a public company, acquired 100% of XYZ Ltd. The book value approximated fair value at the time of XYZ's assets and liabilities with the exception of their bond payable which had a fair value $10,000 less than its recorded book value and a remaining life of 20 years. Which of the following statements is false?
A)It is not required to use the effective interest rate method, so it may amortize the fair value adjustment on a straight-line basis.
B)The bond payable must be reflected at the amortized cost using the effective interest rate method.
C)Over the remaining life of the debt of 20 years, the interest expense will need to be adjusted annually using the effective interest rate method.
D)None of the above is false.

Question

Quizplus · Accepted Answer

The effective interest rate method is required for the amortization of any fair value adjustments related to the bond payable, making statement A false. Straight-line amortization is not generally accepted for financial reporting purposes when it comes to bonds payable.

On January 1, 2013 ABC Company, a Public Company, Acquired