Indicate whether each of the following statements about bonds is true or false._____ a) The carrying value of a bond increases over time if the bond was issued at a premium._____ b) At the end of the term of the bonds, the carrying value of a bond issue is equal to the issue price._____ c) If bonds are sold below face value, the difference between the issue price and the face value is called the bond discount._____ d) The payment of interest is an operating activity on the statement of cash flows._____ e) The issuance of bonds does not appear on the statement of cash flows.
What will be an ideal response?
a) This is false. The carrying value of a bond issued at a premium decreases over time.
b) This is false. The carrying value of a bond is equal to the issue price on the date that the bond is issued. The carrying value of a bond, whether issued at a discount or at a premium, is equal to the face value at the end of the bond's term.
c) This is true. A bond discount is the difference between the bond's face value and its issue price if the bond is issued below face value.
d) This is true. Payment of interest is an operating activity on the statement of cash flows.
e) This is false. Issuing bonds is reported as a cash inflow for financing activities on the statement of cash flows.
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