When a Bond Payable Is Issued at a Premium, Subsequent

question 60

Multiple Choice

When a bond payable is issued at a premium, subsequent amortization of the premium does which of the following?

• A)Increases interest expense.
• B)Decreases the book value of the bonds.
• C)The amortization for each year the bond approaches maturity, when the effective-interest method is used, would decrease.
• D)Decreases the amount reported as a cash flow from operating activities.

---

Definitions:

Deferred Profit Sharing

A retirement plan in which employees receive a portion of the company's profits at a later date, usually at retirement.

Pension Plan

A retirement plan that requires an employer to make contributions into a pool of funds set aside for an employee’s future benefit.

Share Appreciation Rights

A type of employee benefit plan that gives an employee the right to receive cash or stock based on the increase in the price of the company shares.

Market Value

The current price at which an asset or service can be bought or sold in the open market.