If Bonds Are Originally Sold at a Discount Using the Straight-Line

question 140

Multiple Choice

If bonds are originally sold at a discount using the straight-line amortization method:

• A) Interest expense in the earlier years of the bond's life will be less than the interest to be paid.
• B) Interest expense in the earlier years of the bond's life will be the same as interest to be paid.
• C) Unamortized discount is subtracted from the face value of the bond to determine its carrying value.
• D) Unamortized discount is added to the face value of the bond to determine its carrying value.

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Definitions:

Switch Break-Even Point

This term refers to the point at which the cost savings or revenue from changing a system or product equals the costs associated with the change.

Variable Cost

Charges that fluctuate according to the volume of production.

Monthly Interest Rate

The interest rate for a period of one month, often used to calculate the interest on loans and financial products on a monthly basis.

Cash Basis

An accounting method where revenues and expenses are recognized only when cash is received or paid.