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:

Perpetual Inventory System

An inventory management approach that keeps continuous, real-time records of goods purchased and sold, reflecting current inventory levels at all times.

Merchandise Inventory

Goods that a company holds for the purpose of selling them to customers, representing one of the key assets on the balance sheet.

Accounts Payable

The liabilities a company has to its vendors or lending parties for products and services it has received but for which payment has not been made.

Net Method

A way of recording purchases or sales of goods that directly factors in any discounts or allowances at the time of the transaction.