5) Under GAAP, interest expense is: a) The stated interest rate times the face a

Question

5) Under GAAP, interest expense is: a) The stated interest rate times the face amount of debt times the amount of time. b) The effective interest rate times the amount of debt outstanding times the amount of time. c) The effective interest rate times the face amount of the debt times the amount of time. d) The stated interest rate times the amount of the debt outstanding during times the amount of time. 6) The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest: a) b) c) d) Less the present value of all future interest payments at the rate of interest stated on the bond. Plus the present value of all future interest payments at the market (effective) rate of interest. Plus the present value of all future interest payments at the rate of interest stated on the bond. Less the present value of all future interest payments at the market (effective) rate of interest. 7) When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue? a) A nominal amount is allocated to the warrants. b) The pro ceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values. c) All of the proceeds are allocated to the bonds. d) The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values.

Explanation / Answer

Explanation

Each Interest expense will be calculated of the basis of amount outstanding and the market rate of interest. Therefore, total interest expense can be calculated at the effective rate multiplied with the debt outstanding times the amount of time.

Answer

b) Plus the present value of all future interest payments at the market (effective) rate of interest

Answer

b) The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face value.

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