The Effective Interest Amortization Method

question 83

Multiple Choice

The effective interest amortization method:

• A) Allocates bond interest expense over the bond's life using a constant interest rate.
• B) Allocates bond interest expense over the bond's life using a changing interest rate.
• C) Allocates bond interest expense using the current market rate for each interest period.
• D) Allocates a decreasing amount of interest over the life of a discounted bond.
• E) Is not allowed by the FASB.

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Definitions:

Financing Activities

Transactions and events that affect the long-term liabilities and equity of an organization, including issuing shares, paying dividends, and borrowing or repaying loans.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's profits.

Payments

Transactions made by individuals or entities to fulfill financial obligations, such as bills, salaries, or loans.

Operating Activities

Activities that are directly related to the day-to-day operations of a business, such as sales, purchase of inventory, and payment of expenses.