Which of the Following Statements Regarding the Effective-Interest Method of Accounting

question 139

Multiple Choice

Which of the following statements regarding the effective-interest method of accounting for bonds characteristics is false?

• A) GAAP always requires use of the effective interest method.
• B) The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective-interest method is used.
• C) Over the life of the bonds, the carrying value increases for discounted bonds when using the effective-interest method.
• D) The effective-interest method applies a constant percentage to the bond carrying value to compute interest expense.

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Definitions:

Current Account

A component of a country's balance of payments that measures the trade of goods and services, net earnings on investments, and transfer payments.

Tangible Products

Physical items that can be seen, touched, and used, as opposed to services or digital goods.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation, a creditor relationship with a governmental body or corporation, or rights to ownership as represented by an option.

Trade Balance

The difference in value between a country's imports and exports over a given period, a component of a country's balance of payments.