[j wow]

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 bond

ANSWERS:
A I only

B 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.

[YouCanDoIt]

Carrying value does go up. However, it only goes up to its original face value (and down to its original face value in case of Premium bond) by due date. So , basically until the bond is due, it not going to be equal to the FV. If it helps, google a “discount bond schedule ,” it will lay out the carrying value, etc as bond approaches due date.

FAR: 76
REG: Currently studying
AUD:
BEC:

[Author]

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