Question

Which one is the correct statement for Bonds?

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.

Answer 1

The cash interest paid on bonds is calculated by multiplying the bond's face value by the face rate of interest. Additional adjustments are made for bonds sold at a premium or discount.

Step-by-step explanation:

The correct statement regarding the calculation of cash interest paid on bonds is: The cash interest paid is calculated as the bond face value × the face rate of interest. When a bond is sold at a premium, the difference between the cash interest paid and the interest expense is indeed added to the carrying value of the bonds. Similarly, if bonds were sold at a discount, the difference between the interest expense and the interest paid is deducted from the carrying value of the bonds.

Therefore, statements 'b' and 'd' are accurate and pertain to the accounting treatment of bond premiums and discounts respectively.