Reference no: EM132995717
Problem 1: On January 2, 20x1, Nast Co. issued 8% bonds with a face amount of P1,000,000 that mature on January 2, 20x7. Thebonds were issued to yield 12%, resulting in a discount of P150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize thediscount. How is the carrying amount of the bonds affected by the error?
a. Overstated - At Dec. 31, 20x1, Understated - At Jan. 2, 20x7
b. Overstated - At Dec. 31, 20x1, No effect - At Jan. 2, 20x7
c. Understated - At Dec. 31, 20x1, Overstated - At Jan. 2, 20x7
d. Understated - At Dec. 31, 20x1, No effect - At Jan. 2, 20x7
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