When the Effective Interest Method Is Used, the Amortization of the Bond

question 40

Multiple Choice

When the effective interest method is used, the amortization of the bond premium

• A) increases interest expense each period
• B) decreases interest expense each period
• C) increases interest expense in some periods and decreases interest expense in other periods
• D) has no effect on the interest expense in any period

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Definitions:

Flexible Budget

A budget that adjusts or flexes for changes in the volume of activity, providing a more useful comparison against actual costs than a static budget.

Actual Activity

The real or factual actions or tasks completed within a period, often measured to assess performance or productivity.

Static Budget

A financial plan that does not change or adjust with variations in business activity levels.

Labor Rate Variance

The difference between the actual cost of direct labor and its expected (or standard) cost during a given period.