Which of the Following Best Describes the Accounting for Discounts

question 31

Multiple Choice

Which of the following best describes the accounting for discounts and premiums for bonds purchased by a fiduciary for an estate?

• A)​Premiums are amortized, but discounts are not.
• B)​Discounts are amortized, but premiums are not.
• C)​GAAP guidelines for amortization are followed, i.e., both are amortized.
• D)​Like bonds purchased prior to the death, neither discounts nor premiums are amortized.

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Definitions:

Incremental Costs

The additional costs that are incurred if the level of business activity or output changes.

Out-of-Pocket Costs

Out-of-pocket costs are expenses that individuals directly pay from their funds, not covered by third-party payers like insurance.

Incremental Revenue

Additional revenue generated from a specific action or decision, beyond what would have been generated otherwise.

Special Order

A one-time order that is not considered part of the company's normal ongoing operations.