Interest Expense Is Computed Annually When a Bond Is Issued

question 89

Multiple Choice

Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?

• A)Decrease
• B)Increase
• C)Remain constant
• D)Not enough information given to decide

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Definitions:

360-Day Year

An accounting assumption that a year consists of 360 days, which simplifies interest calculation by assuming each month has 30 days.

Warranty Expense

Costs a company incurs due to honoring a product warranty, covering repair and replacement of faulty products.

Warranty Repairs

Services provided to fix or replace products that fail to perform as expected within a given warranty period, usually at no cost to the customer.

Note Proceeds

The amount of money received from issuing notes payable, which is a loan or credit extended by financial institutions or others.