Which of the Following Statements Does Not Correctly Describe the Accounting

question 28

Multiple Choice

Which of the following statements does not correctly describe the accounting for bonds that were issued at a discount?

• A)The interest expense over the life of the bond exceeds the total cash interest payments.
• B)The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
• C)The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used.
• D)The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is useD.When bonds are issued at a discount, their book value increases over time and eventually reach the bonds' maturity value.Interest expense increases because the book value increases.The amortization of discount on bonds payable is the difference between the increasing interest expense and the constant cash interest payment.

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Definitions:

Entry Barriers

Obstacles that prevent or hinder new competitors from easily entering an industry or area of business, potentially including high startup costs, stringent regulations, or strong brand loyalty among consumers.

Patent

An exclusive right given to inventors to produce and sell a new product or machine for 20 years from the time of patent application.

Imitation

The action of using someone or something as a model and copying their behavior or actions.

Legal Expenses

Costs associated with legal advice, litigation, or other legal activities which individuals or businesses might incur.