The Result of Using the Effective Interest Method of Amortization

question 113

Multiple Choice

The result of using the effective interest method of amortization of discount on bonds is that the

• A)interest expense for each amortization period is constant.
• B)effective interest rate for each amortization period is constant.
• C)amount of interest expense decreases each period.
• D)cash interest payment is greater than the interest expense.

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Definitions:

Cost-Volume-Profit Analysis

An accounting method used to determine how changes in costs and volume affect a company's operating income and net income.

Contribution Format

An income statement format that separates fixed and variable costs, showing the contribution margin which covers fixed costs and profits.

Absorption Costing

A bookkeeping strategy that encompasses all production expenses, including direct materials, direct labor, and variable plus fixed overhead, into the pricing of a product.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed overhead expenses as period costs.