Under the Original Issue Discount (OID) Rules as Applied to a Three-Year

question 47

Multiple Choice

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

• A)All of the income must be recognized in the year of maturity.
• B)The OID will be included in gross income for the year of purchase.
• C)The interest income for the first year will be less than the interest income for the third year.
• D)The original issue discount must be amortized using the straight-line method.
• E)None of the above is correct.

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Definitions:

Fair-Value Method

Fair-Value Method is an accounting approach where assets and liabilities are recorded at their current market value, reflecting potential changes over time.

Goodwill

Goodwill is an intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets and liabilities at the acquisition date.

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets and liabilities.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net assets, reflecting the value of the business's brand, customer relationships, and other unquantifiable assets.