CFA Practice Question

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CFA Practice Question

On January 1, 2015, the Liz-Beth Company issued zero-coupon bonds for $68,301, which resulted in an effective interest rate of 10%. The bonds' face value was $100,000 and the maturity date was January 1, 2019. What would be the amount of interest paid in 2015?
A. $0
B. $6,830
C. $10,000
Explanation: Zero-coupon bonds have no stated interest rate and do not pay interest.

User Contributed Comments 5

User Comment
kalps Should you not accrue for it as there is an interest element it is just not implicit ? Under UK GAAP you have to accrue for the interest and have an expense in the P&L account - is this not the case under US GAAP
eheinzer I think you have interest expenseses in your P & L, but the questions asks for interest paid.
Gigem This question could have more clearly written as "what amount of interest paid appears on the cash flow statement"
andy4cfa Be careful of the trap "zero coupon"!
teje no cash outflow occurs until 2014; the interest expense = the discount amortization, which is a non-cash item.
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