Area 2: Select Balance Sheet Accounts (30-40%)
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Gain (Loss) = Carrying Amount of Debt − Reacquisition Price
Carrying amount = Face ± unamortized premium/discount − unamortized issuance costs. Positive result = gain; negative = loss. Reported in income from continuing operations
Face Value ± Unamortized Premium/Discount
Premium: stated rate > market rate. Discount: stated rate < market rate.
Interest Expense = Carrying Amount × Market Rate at Issuance
| Feature | Premium | Discount |
|---|---|---|
| Condition | Stated rate > Market rate at issuance | Stated rate < Market rate at issuance |
| Issue price | Above face value | Below face value |
| Carrying amount over time | Decreases toward face value | Increases toward face value |
| Interest expense vs. cash paid | Interest expense < Cash paid | Interest expense > Cash paid |
| Amortization effect | Reduces interest expense below coupon | Increases interest expense above coupon |
| At maturity | Carrying amount = Face value | Carrying amount = Face value |