- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments
CFA Practice Question
When bonds are issued at a premium, the long-term liability reported on the balance sheet for the bonds ______
A. decreases each year during the life of the bond.
B. increases each year during the life of the bond.
C. decreases or increases each year, depending upon the current market rate.
Explanation: When bonds are issued at a premium (an amount greater than face), the premium is amortized until it reaches zero. As the premium is decreased, the book value of the liability will decrease until it reaches face value at maturity.
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