CPA Exam Lab
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.

CPA Exam Lab is an independent study resource and is not affiliated with, endorsed by, or sponsored by the AICPA® or NASBA. Practice questions are original content created for study purposes. “CPA” is a registered trademark of the AICPA.

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