When the Straight-Line Method of Amortization Is Used for a Bond

question 19

Multiple Choice

When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by

• A)adding the amount of premium amortized for that period to the amount of cash paid for interest during the period.
• B)subtracting the amount of premium amortized for that period from the amount of cash paid for interest during the period.
• C)multiplying the face value of the bonds by the stated interest rate.
• D)multiplying the face value of the bonds by the market interest rate.

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Definitions:

Involuntary Conversion

An event where property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the owner receives other property or compensation in replacement.

Recognized Gain

The portion of gain considered for tax purposes when an asset is sold or disposed of, which may differ from the actual profit realized.

Basis

The initial value of an asset for tax purposes, used to determine gain or loss on sale or disposition.

Rental Property

Real estate property that is owned by an individual or entity and rented out to tenants in exchange for monthly rental payments.