If a Company Uses the Effective Interest Method of Amortizing

question 37

Multiple Choice

If a company uses the effective interest method of amortizing a bond discount, the interest expense that is recognized each year will:

• A) be greater than the interest payment.
• B) increase from year to year.
• C) remain the same from year to year.
• D) be greater than the interest payment and also will increase from year to year.

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Definitions:

Annual Costs

The total expenses incurred by an individual or organization over the course of a year.

Required Return

The minimum return an investor expects to achieve by investing in a particular asset, considering the risk involved.

Customized Machine

A piece of equipment specifically designed and built to meet the unique requirements of a particular business or manufacturing process.

Operating

Pertains to the ongoing, day-to-day activities involved in running a business or an organization.