How Will the Effective Interest Rate Method of Amortization Affect

question 105

Multiple Choice

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

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

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Definitions:

Discount

A reduction applied to the regular price of goods or services, often used as a sales strategy.

Net Price

The actual price paid for a product or service after deducting any discounts, rebates, or allowances.

Real Estate Commission

A fee paid to a real estate agent or broker for facilitating the sale or lease of a property, typically a percentage of the sale price.

Net Proceeds

The amount of money received from a sale after all costs and expenses have been paid.