Gibson Corporation Amortizes Its Bonds Using the Effective Interest Method

question 42

Multiple Choice

Gibson Corporation amortizes its bonds using the effective interest method. Which statement is correct?

• A)[Interest expense] = [Stated rate] X [Carrying value of the bonds]
• B)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a discount]
• C)[Cash interest payment] = [Bond face amount] X [Market interest rate]
• D)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a premium]

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Definitions:

Credit Union

A member-owned financial cooperative that provides banking services, including savings and loan facilities, to its members.

Shelter Principle

The principle that the holder of a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC.

HDC Status

HDC status refers to being recognized as a Holder in Due Course, which grants certain legal protections in the context of financial instruments, emphasizing good faith acquisition and the absence of knowledge of defects.

Holder

An individual or entity that legally possesses a negotiable instrument, like a check or a bill of exchange.