When the Effective Interest Method Is Used, the Amortization of the Bond

question 40

Multiple Choice

When the effective interest method is used, the amortization of the bond premium

• A) increases interest expense each period
• B) decreases interest expense each period
• C) increases interest expense in some periods and decreases interest expense in other periods
• D) has no effect on the interest expense in any period

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Definitions:

Cash Flows

The total amount of money being transferred in and out of a business, especially affecting liquidity.

Obsolete

Referring to a product, service, or technology that has become out of date or no longer in use.

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Operating Activities

The day-to-day actions that are involved in running a business and generating revenue, including production, sales, and service delivery.