Which of the Following Statements Regarding the Effective Interest Method

question 125

Multiple Choice

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

• A) GAAP requires 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:

Basic Financial Statements

Core reports that provide critical financial information about a company, typically including the balance sheet, income statement, and statement of cash flows.

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments, not including cash equivalents.

Sale of Land

A financial transaction involving the transfer of ownership of real estate property from one party to another.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset, reducing its original cost to its current book value over time.