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

A discount or premium on bonds payable can be defined by which of the following statements?

A discount occurs when bonds are issued for less than their face value, while a premium occurs when bonds are issued for more than their face value.

A discount or premium on bonds payable only affects the interest payments made to bondholders.

A discount occurs when bonds are issued for more than their face value, while a premium occurs when bonds are issued for less than their face value.

A discount or premium on bonds payable is unrelated to the market interest rate at the time of issuance.

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Verified step by step guidance

Step 1: Understand the concept of bonds payable. Bonds payable are a form of long-term debt issued by a company to raise funds. The face value of the bond is the amount the issuer agrees to repay the bondholder at maturity.

Step 2: Define a discount on bonds payable. A discount occurs when bonds are issued for less than their face value. This typically happens when the stated interest rate on the bond is lower than the market interest rate at the time of issuance.

Step 3: Define a premium on bonds payable. A premium occurs when bonds are issued for more than their face value. This typically happens when the stated interest rate on the bond is higher than the market interest rate at the time of issuance.

Step 4: Clarify the relationship between discounts/premiums and market interest rates. Discounts and premiums are directly related to the market interest rate at the time of issuance. If the market rate is higher than the bond's stated rate, a discount occurs. If the market rate is lower, a premium occurs.

Step 5: Evaluate the provided statements. Based on the definitions and relationships explained, identify the correct statement that aligns with the concept of discounts and premiums on bonds payable.