Asked by
Jonathan Hernandez
on Nov 13, 2024Verified
When the effective-interest method of bond discount amortization is used
A) the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date.
B) the carrying value of the bonds will decrease each period.
C) interest expense will not be a constant dollar amount over the life of the bond.
D) interest paid to bondholders will be a function of the effective-interest rate on the date the bonds are issued.
Effective-Interest Method
A way of calculating the amortized cost of a bond and the amount of interest expense over its life, reflecting the constant rate of interest over the period.
Bond Discount Amortization
The process of gradually writing off the discount on a bond over the life of the bond, reflecting the increase in its value as it nears maturity.
Carrying Value
The net amount at which an asset is valued on the balance sheet, taking into account depreciation, amortization, and impairment costs.
- Familiarize oneself with the procedure and application of the effective-interest method in the amortization of bond discounts.
Verified Answer
KR
Learning Objectives
- Familiarize oneself with the procedure and application of the effective-interest method in the amortization of bond discounts.