How Will the Effective Interest Rate Method of Amortization Affect

question 36

Multiple Choice

How will the effective interest rate method of amortization affect the interest expense incurred on a bond issued at a discount?

• A) Interest expense will decrease as the carrying value of the bond increases.
• B) Interest expense will increase as the carrying value of the bond decreases.
• C) Interest expense will decrease as the carrying value of the bond decreases.
• D) Interest expense will increase as the carrying value of the bond increases.

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Definitions:

Budget Deficit

The situation when a government's expenditures exceed its revenues within a specific budget period, leading to borrowing or use of saved reserves.

Interest Rate

The slice of a loan imposed as interest upon the borrower, usually articulated as an annual percentage of the loan still to be repaid.

Federal Income Tax

A tax imposed by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.