If Bonds Are Initially Sold at a Discount and the Straight-Line

question 5

Multiple Choice

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will be

• A) higher than it would have been had the effective-interest method of amortization been used.
• B) less than it would have been had the effective-interest method of amortization been used.
• C) the same as it would have been had the effective-interest method of amortization been used.
• D) less than the stated rate of interest.

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Definitions:

Consumption

The use of goods and services by households.

Additional Item

A supplementary product or service added to an existing order or purchase.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one misses out on when choosing one option over another.

Car Dealership Union

A labor union representing workers within car dealerships.