Under the Effective-Interest Method of Amortization,the Cash Payment on Each

question 20

Multiple Choice

Under the effective-interest method of amortization,the cash payment on each interest payment date will:

• A) remain the same for each interest period
• B) decrease if bonds are issued at a premium
• C) increase if bonds are issued at par
• D) increase if bonds are issued at a discount

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Definitions:

No-Par Value Stock

Stock issued without a specified face value but which may have a stated value assigned by the company.

Stated Value

The value assigned to no-par-value stock by the board of directors of a company, which can then be used as the basis for accounting and legal purposes.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock, which must be paid out before any dividends can be issued on common shares.

Cumulative Preferred Stockholders

Investors holding a type of preferred stock that accumulates dividends in arrears should the dividends not be declared in any given period.