Section 2: 30–40%2H

Long-Term Debt (Financial Liabilities)

Exam insight

Bond accounting is almost all effective interest method now; straight-line is rarely tested anymore. Premium bonds are where interest expense often gets handled backward. A premium bond has a stated rate above market, so the premium amortizes down each period and the carrying value falls toward face. Watch bond issuance costs too. Under current GAAP they reduce the carrying value (a debt issuance cost contra) rather than sitting as a separate asset.

What AICPA wants you to know

1Calculate the issue price of bonds using present value concepts
2Apply the effective interest method to amortize bond premium or discount
3Record early retirement of bonds and calculate gain or loss
4Distinguish between coupon rate and market (effective) interest rate
5Understand the relationship between bond price and interest rates

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Bond MathCash follows the coupon on face; expense follows the market rate on carrying value; the difference amortizes toward face.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.