- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 25. Non-Current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments
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. |