Under the Effective-Interest Method of Amortization, Interest Expense Each Period

question 205

Multiple Choice

Under the effective-interest method of amortization, interest expense each period can be calculated by multiplying the:

• A) face value of the bonds times the effective-interest rate for the appropriate time period.
• B) carrying value of the bonds times the effective-interest rate for the appropriate time period.
• C) face value of the bonds times the stated interest rate for the appropriate time period.
• D) carrying value of the bonds times the stated interest rate for the appropriate time period.

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Definitions:

Loss Contingencies

Potential losses that may occur in the future and are recorded in financial statements if they are probable and can be reasonably estimated.

Accrue

The process of recording expenses and revenues that have been incurred or earned, respectively, but not yet received or paid, in order to reflect the true financial position of an entity.

Estimated Loss

An anticipated loss that a company might suffer due to various risks and uncertainties, and which is accounted for in advance.

Appropriation

The allocation or setting aside of funds by a company for a specific purpose or the restriction of retained earnings distributed to shareholders.