1. Which one of the following is not correct? a. For debt issued at par: interes
ID: 2419816 • Letter: 1
Question
1. Which one of the following is not correct?
a. For debt issued at par: interest expense reported on the income statement equals the cash paid for interest.
b. For bond repurchases: Gain (loss) on bond repurchase = Cash paid to repurchase – Net book value of bonds.
c. For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of the discount.
d. For debt issued at a premium, interest expense reported on the income statement equals cash interest payment less amortization of the premium.
e. None of the above
Explanation / Answer
The following statement is not correct:
For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of the discount.
Because, for debt issued at a discount, the income statement will include an interest expense equal to the bond's coupon payment plus the amortized portion of the discount received during the specified accounting period.
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