Which of the Following Statements Regarding the Effective Interest Method

question 82

Multiple Choice

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

• A)GAAP requires the 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 bond, 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:

Manufacturing Plant

A facility used for the production and assembly of goods and products.

Material Misstatements

Inaccuracies or omissions of significant information that could influence the decision-making process of users of financial statements.

Registration Statement

A set of documents filed with a regulatory body, such as the SEC, detailing the particulars of a new security to be issued to the public.

Statute of Limitations

Legislation that specifies the longest duration allowed to initiate legal action, varying by the nature of the claim or case.