How Does a Company Account for the Difference Between Interest

question 63

Multiple Choice

How does a company account for the difference between interest expense and the cash payment of interest when bonds are issued at less than their face value?

• A) The difference is accounted for using Amortization of Bond Discount.
• B) The difference is accounted for using Amortization of Bond Premium.
• C) In this situation the cash payment of interest will exceed interest expense.
• D) None of the above answers are correct.

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Definitions:

Estimated Cost

A projection or approximation of the cost to produce a product or complete a project.

Cost Graphs

A visual representation used in economics and accounting to display the relationship between costs and various levels of activity.

Direct Labor

The labor costs associated with employees who directly contribute to the production of goods or the provision of services.

Straight-line Depreciation

A method of allocating an asset’s cost evenly across its useful life.