Question

Mango Corporation issues new long-term bond offerings several times a year. The company follows a policy of using straight-line amortization for all those issues. Which of the following is an accurate statement regarding the company's policy?

a. the policy is appropriate if management typically prices its bond issues at a discount

b. the policy is inappropriate because using the straight line method is acceptable only when doing so produces results that are not materially different from the effective interest method

c. the policy is appropriate if management typically prices its bond issues at a premium

d. the policy is inappropriate because Mango issues new long-term bond offerings more than once a year

Answer 1

Ans:

Bonds discount and premium is managed by the market rate of interest and stated rate of interest on bonds. A policy generally doesn't impact much over bonds premium or discount pricing. But a policy is to be considered inappropriate if management requires to offer the bonds more than once.

A good policy is what is not required to be changed and which produce best results at the first.

So correct answer is Option D.

The policy is inappropriate because Mango issues new long-term bond offerings more than once a year.

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