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

Which of the following is true for bonds issued at a discount?

The carrying value of the bonds decreases over time.

The bonds are sold for less than their face (par) value.

The bonds are sold for more than their face (par) value.

The stated interest rate is higher than the market interest rate.

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Verified step by step guidance

Step 1: Understand the concept of bonds issued at a discount. Bonds are issued at a discount when their selling price is less than their face (par) value. This typically happens when the stated interest rate on the bond is lower than the prevailing market interest rate.

Step 2: Analyze the relationship between the stated interest rate and the market interest rate. When the stated interest rate is lower than the market interest rate, investors are less willing to pay the full face value of the bond, resulting in the bond being sold at a discount.

Step 3: Evaluate the carrying value of bonds issued at a discount. Over time, as interest expense is recognized and the discount is amortized, the carrying value of the bond increases until it equals the face value at maturity.

Step 4: Compare the options provided in the problem. The correct answer should align with the definition of bonds issued at a discount, which is that they are sold for less than their face (par) value.

Step 5: Eliminate incorrect options. For example, the carrying value of bonds issued at a discount does not decrease over time—it increases. Bonds sold for more than their face value are issued at a premium, not a discount. Lastly, the stated interest rate being higher than the market interest rate would result in a premium, not a discount.