Section 2: 30–40%2H
Long-Term Debt (Financial Liabilities)
Exam insight
Bond accounting is almost all effective interest method now; the AICPA rarely tests straight-line anymore. The common trap shows up on premium bonds, where candidates handle interest expense backward. Remember: a premium bond has a stated rate above market, so the premium amortizes DOWN each period and the carrying value falls. Watch bond issuance costs too: under current GAAP they reduce the carrying value (a debt issuance cost contra), rather than sitting as a separate asset.
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What AICPA wants you to know
- 1Calculate the issue price of bonds using present value concepts
- 2Apply the effective interest method to amortize bond premium or discount
- 3Record early retirement of bonds and calculate gain or loss
- 4Distinguish between coupon rate and market (effective) interest rate
- 5Understand the relationship between bond price and interest rates