Gibson Corporation Amortizes Its Bonds Using the Effective Interest Method

question 42

Multiple Choice

Gibson Corporation amortizes its bonds using the effective interest method. Which statement is correct?

• A)[Interest expense] = [Stated rate] X [Carrying value of the bonds]
• B)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a discount]
• C)[Cash interest payment] = [Bond face amount] X [Market interest rate]
• D)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a premium]

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