Cash Interest Is Computed Annually When a Bond Is Issued

question 117

Multiple Choice

Cash interest is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

• A) Decrease
• B) Increase
• C) Remain constant
• D) Not enough information given to decide.

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Definitions:

Ideal Standards

Standards that can be achieved only under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage; also called theoretical standards.

Machine Breakdowns

Refers to the unexpected failures or malfunctions of machinery that disrupt the production process or operations.

Materials Spoilage

The portion of raw materials that becomes unusable and is discarded during the production process.

Direct Labor

Labor costs directly attributed to the production of goods or services, such as wages paid to factory workers or assembly line employees.