The FASB Classifies Interest Received on Investments and Interest Paid

question 83

Multiple Choice

The FASB classifies interest received on investments and interest paid on debt financing as part of operating cash flows,while the IASB:

• A)Allows interest received to be classified as either operating or investing and interest paid as either operating or financing.
• B)Allows interest received to be classified as either operating or financing and interest paid as either operating or investing.
• C)Allows interest received to be classified only as investing and interest paid only as financing.
• D)Allows interest received to be classified only as financing and interest paid only as investing.

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Definitions:

Zero-coupon Bonds

Debt securities that are issued at a discount to their face value and do not pay interest during their life but are redeemed at full face value at maturity.

Yield To Maturity

The total return expected on a bond if the bond is held until its maturity date, incorporating both interest payments and the capital gain or loss.

Discount

The reduction applied to the nominal or face value of something, typically used in the context of bonds or selling goods and services at below their listed prices.

Coupon Bond

A bond that pays the holder a fixed interest rate (the coupon) periodically until maturity, at which point the principal and final interest payment are made.