Under the Effective-Interest Method, If Bonds Are Issued at a Premium

question 92

Multiple Choice

Under the effective-interest method, if bonds are issued at a premium:

• A)the amount of interest expense decreases each interest period as the bonds move towards maturity value.
• B)the amount of interest expense remains the same for each interest period as the bonds move towards maturity value.
• C)the amount of interest expense increases each period as the bonds move towards maturity value.
• D)none of the above occur.

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Definitions:

Note Payable

A written agreement in which one party agrees to pay another party a definite sum of money at a future date or on demand.

Current Assets

Assets likely to be converted into cash, sold, or consumed within a year or the normal operating cycle of the business.

Profit Margin

A financial metric that measures the percentage of revenue that exceeds the cost of goods sold, indicating the profitability of a business.

Net Income

The profit of a company after all expenses and taxes have been subtracted from total revenue.