Quiz Ch 09 – T/F Premium on Bonds Payable and Issuer’s Liability
Financial Accounting
Thomas, Tietz, and Harrison
12th Edition
The Premium on Bonds Payable account represents a liability for the issuer.
The Premium on Bonds Payable account represents a liability for the issuer.
Operating leases create a liability for the lessee, which must be recorded on their balance sheet due to the lease term being longer than one year.
The times-interest earned ratio is negative when net income is positive.
Long-term debt with maturities within one year of the balance sheet date is disclosed separately from long-term debt.
The lessee assumes the risks and rewards of owning the leased asset in operating leases.
The times-interest-earned ratio reflects the company’s capacity to cover interest costs.
The effective-interest method generates varying interest expenses for each interest payment made during the bond’s life.
GAAP permits the straight-line amortization method for bond discounts and premiums only when the resulting amounts are relatively similar to those obtained through the effective-interest method.
The straight-line amortization method is considered the most theoretically accurate approach to amortizing bond discounts and premiums as it acknowledges the influence of the time value of money on interest expenses recognized in each interest payment period.
Which method of amortizing a bond discount or premium is considered the most theoretically correct?