Amortizing a Bond Discount

question 103

Multiple Choice

Amortizing a bond discount:

• A)Allocates a part of the total discount to each interest period.
• B)Increases the market value of the Bonds Payable.
• C)Decreases the Bonds Payable account.
• D)Decreases interest expense each period.
• E)Increases cash flows from the bond.

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Definitions:

Present Value

The contemporary evaluation of a future financial sum or cash inflow patterns, using a defined rate of return.

Simple Interest

Simple interest is a method of calculating the interest charge on a loan or investment based on the original principal amount and the rate of interest without compounding.

Account Balance

The amount of money held in a financial account, which reflects all transactions made.

Interest

The cost of borrowing money, usually expressed as a percentage of the principal, paid by the borrower for the use of borrowed funds.