Using the effective interest rate method, the interest expense reported in the income statement is calculated as:
Explanation
The effective interest rate method applies the historical yield at issuance to the current carrying value.
Other questions
Which of the following best describes the balance sheet liability of a bond at issuance?
A bond is issued with a coupon rate of 6 percent when the market rate of interest is 7 percent. This bond is issued at:
For a bond issued at a premium, how does the amortization of the premium affect the bond's book value over time?
If a bond is issued at a discount, the interest expense reported on the income statement will be:
A zero-coupon bond is also known as a:
Under U.S. GAAP, bond issuance costs are typically:
When a firm redeems bonds before maturity, a gain is recognized if:
Which of the following is an example of an affirmative debt covenant?
A technical default occurs when:
For a lessee, a lease is classified as a finance lease if:
Under IFRS, how does a lessee report a finance lease on the balance sheet?
For a finance lease, the lessee's income statement reports:
Under U.S. GAAP, for an operating lease (long-term), the lessee reports:
From a lessor's perspective, a lease is classified as a finance lease if:
Which of the following describes a defined contribution pension plan?
In a defined benefit plan, if the fair value of plan assets is less than the estimated pension obligation, the firm reports:
Which ratio measures the percentage of total assets financed with debt?
The interest coverage ratio is calculated as:
A firm issues a 3-year annual coupon bond with a face value of $100,000 and a 10 percent coupon rate. The market interest rate at issuance is 9 percent. The initial book value of the bond is closest to:
A firm issues a bond at a discount. In the first year, the interest expense reported on the income statement will be composed of:
Under the effective interest rate method, the amortization of a bond discount results in:
If a firm reports debt at fair value under the fair value option, a decrease in the bond's yield will result in:
When presenting cash flows using the indirect method, how is the amortization of a bond discount treated?
A firm reacquires $1 million face amount of bonds at 102 percent of par when the carrying value of the bond liability is $995,000. The firm will recognize:
Which of the following is typically a negative debt covenant?
Affordable Company enters a 4-year lease with annual payments of $10,000. The interest rate is 5 percent. The present value of payments is $35,460. If classified as a finance lease, the initial lease liability is:
In the early years of a finance lease, compared to an operating lease (under U.S. GAAP), the lessee will typically report:
Under IFRS, cash flows from the principal portion of a finance lease payment are classified as:
Which of the following creates a net pension asset?
The debt-to-capital ratio is defined as:
Which ratio includes operating lease payments in the numerator and denominator to assess solvency?
A firm has total debt of $1,000, total equity of $2,000, and total assets of $4,000. Its debt-to-equity ratio is:
Regarding financial reporting quality, determining the 'capacity to repay' is most associated with:
Which of the following is true regarding the accounting for issuance costs under IFRS?
A firm has a defined benefit plan. The employer's contribution is $100,000, but the total pension expense calculated is $120,000. The difference is primarily reflected in:
Under U.S. GAAP, interest paid on a bond is classified as:
For a bond issued at a premium, interest expense in the first year is:
Under IFRS, what condition exempts a lessee from recording a lease asset and liability?
If a company leases a machine for its entire useful life, it is most likely classified as:
Regarding lessee accounting under U.S. GAAP, which cash flow is classified as operating for an operating lease?
The carrying value of a bond liability is also known as its:
A firm issues a $1,000 par value bond at $980. The $20 difference is:
Which of the following would *most likely* decrease a firm's return on assets (ROA) in the early years of a lease?
A defined benefit plan's periodic cost reported in net income includes:
Which of the following is considered a 'non-interest-bearing liability' when calculating the debt-to-capital ratio?
For a bond issued at par, the cash flow from financing activities at maturity is:
If a firm grants a lessee an option to purchase the asset at a price significantly lower than fair value, the lease is likely:
A discount bond has a coupon rate of 5% and a market rate of 7% at issuance. After one year, assuming rates don't change, the bond's liability value will:
Why might a firm prefer to issue a bond at a discount rather than at par?