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Topic
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An investor purchased a bond classified as long-term investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than the
I. Cash paid to seller
II. Face amount of bondANSWERS:
A I onlyB II only
C Neither I nor II
D Both I and II
This is the explanation for the answer: When a bond is purchased at a discount, the carrying value will be lower than the face amount of the bond. As a result, a bond purchased between interest dates at a discount has a carrying amount that is lower than both the cash paid to the seller and the face amount of the bond.
“The answer is C neither. I thought the answer would be II only, because since the bond is bought at a discount of course it is less than the Face Amount. How does a bond purchased between interest dates have a carry amount that is lower than the cash paid to the seller? When you amortize the discount doesnt the carrying value go up?
I feel like this is obvious but im not getting it, thank you.
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