Which of the following statements about bonds is correct?
A)The cash interest paid is calculated as the bond face value × the effective rate of interest.
B)The cash interest paid is calculated as the bond face value × the face rate of interest.
C)The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium.
D)The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

Question

Quizplus · Accepted Answer

The cash interest paid on bonds is calculated as the bond face value multiplied by the face rate of interest. The effective rate of interest takes into account any premium or discount on the bonds, whereas the face rate of interest does not. Additionally, choice C is incorrect because the difference between the cash interest paid and the interest expense is subtracted from the carrying value of the bonds if the bonds were sold at a premium, not added. Choice D is incorrect because the difference between the interest expense and the interest paid is added to the carrying value of the bonds if the bonds were sold at a discount, not deducted.

Which of the Following Statements About Bonds Is Correct