Which of the Following Is Correct About the Effective-Interest Method

question 15

Multiple Choice

Which of the following is correct about the effective-interest method of amortization?

• A) The effective-interest method applied to investments in debt securities is different from that applied to bonds payable.
• B) Amortization of a discount decreases from period to period.
• C) Amortization of a premium decreases from period to period.
• D) The effective-interest method produces a constant rate of return on the book value of the investment from period to period.

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Definitions:

Statement of Cash Flows

A financial statement showing the inflows and outflows of cash within a company over a specific period.

Declaration

A formal or explicit statement, announcement, or assertion.

Cash Flow Per Share

Normally computed as cash flow from operations per share.

Statement of Cash Flows

A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.