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

question 65

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:

Margin Of Safety

Indicates the possible decrease in sales that may occur before an operating loss results.

Variable Costs

Costs that change in proportion to the level of activity or production volume.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums, remaining constant regardless of activity levels.

Break-Even Point

The juncture where the cumulative expenses equal total income, yielding neither a profit nor a loss.