Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

In the context of accounting, what does the term 'premium' most commonly refer to?

The interest earned on a savings account

The cost of goods sold during an accounting period

The amount by which the selling price of a bond exceeds its face value

The total amount of cash received from issuing common stock

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Verified step by step guidance

Understand the term 'premium' in accounting: In financial accounting, 'premium' most commonly refers to the amount by which the selling price of a bond exceeds its face value. This occurs when the bond's coupon rate is higher than the prevailing market interest rate, making the bond more attractive to investors.

Clarify the concept of bond pricing: Bonds are issued with a face value (also known as par value), which is the amount the issuer agrees to repay at maturity. If the bond is sold for more than its face value, the excess amount is called the 'premium.'

Relate the premium to interest rates: A bond sells at a premium when its coupon rate (the interest rate it pays) is higher than the current market interest rate for similar bonds. Investors are willing to pay more for the bond because it offers higher returns compared to the market rate.

Explain accounting treatment: When a bond is issued at a premium, the premium is recorded as a liability on the issuer's balance sheet. Over time, the premium is amortized, reducing the bond's carrying amount and aligning it with its face value by the maturity date.

Highlight the importance of understanding premiums: Recognizing and accounting for bond premiums is crucial for accurate financial reporting and analysis. It impacts the issuer's interest expense and the investor's yield calculations.