When a Bond Is Issued at a Premium

question 158

Multiple Choice

When a bond is issued at a premium:

• A)the carrying value of the bond increases each semiannual interest period.
• B)the carrying value of the bond decreases each semiannual interest period.
• C)the carrying value of the bond remains the same each semiannual interest period.
• D)the carrying value is always equal to the par value each semiannual interest period.

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Definitions:

Equity Method

An accounting technique used to record an investor's proportional ownership in a company by recognizing income and increases in investment for the investor's share of the investee's profits.

Acquisition Differential

The disparity between what was paid to acquire a company and the fair market value of its recognizable net assets.

Equity Method

An accounting technique used by a company to record its investment in another company when it has significant influence over that company but does not have full control.

Bonds Payable

Long-term liabilities representing borrowed funds which the company is obligated to repay to bondholders at a specified future date.