Asked by Amanda Nazimi on May 27, 2024
Verified
The bonds outstanding method of amortizing a discount on serial bonds
A) amortizes an increasing amount of discount each period based on the present value of the bonds outstanding at the beginning of the period
B) amortizes an equal amount of discount each period over the life of the entire bond issue
C) amortizes a decreasing amount of discount each period based on the present value of the bonds outstanding at the beginning of the period
D) amortizes a proportional share of the discount each period based on the face value of the bonds outstanding at the beginning of the period relative to the sum of the face values of the bonds outstanding at the beginning of each period over the life of the entire issue
Amortizing Discount
An Amortizing Discount is the process of spreading the amount of a bond's discount over its expected life, usually through regular charges to expense.
Bonds Outstanding Method
The bonds outstanding method is an approach to calculating interest expense on bonds payable that considers the total value of all bonds that have not yet been redeemed by the issuer.
Serial Bonds
Bonds that mature in installments over a period rather than having a single maturity date.
- Understand the process of recording and reporting diverse bond transactions, including their issuance, interest expense estimations, amortization of discounts or premiums, and their redemption.
Verified Answer
GB
gizeal bahatiMay 29, 2024
Final Answer :
D
Explanation :
The bonds outstanding method amortizes a proportional share of the discount each period based on the face value of the bonds outstanding at the beginning of the period relative to the sum of the face values of the bonds outstanding at the beginning of each period over the life of the entire issue. This method reflects the changing amount of bonds outstanding over time as serial bonds are gradually redeemed.
Learning Objectives
- Understand the process of recording and reporting diverse bond transactions, including their issuance, interest expense estimations, amortization of discounts or premiums, and their redemption.