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

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

When a bond is sold for more than its face (par) value, what is this situation called?

Sold at par

Sold at a premium

Sold at amortized cost

Sold at a discount

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Verified step by step guidance

Understand the concept of bond pricing: Bonds can be sold at par (face value), at a premium (above face value), or at a discount (below face value). The price depends on the relationship between the bond's stated interest rate (coupon rate) and the market interest rate.

Recognize the term 'Sold at a premium': This occurs when the bond's coupon rate is higher than the prevailing market interest rate, making the bond more attractive to investors. As a result, they are willing to pay more than the bond's face value.

Compare the options provided: 'Sold at par' means the bond is sold at its face value, 'Sold at amortized cost' refers to accounting treatment rather than pricing, and 'Sold at a discount' means the bond is sold below its face value.

Identify the correct answer: Since the bond is sold for more than its face value, the situation is referred to as 'Sold at a premium.'

Relate this to accounting entries: When a bond is sold at a premium, the premium amount is recorded as a liability and amortized over the life of the bond using methods such as the straight-line method or the effective interest method.