Which of the Following Statements Correctly Describes the Accounting for Bonds

question 127

Multiple Choice

Which of the following statements correctly describes the accounting for bonds that were issued at a premium?

• A)The interest expense over the life of the bond is less than 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 premium 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 premium, interest expense over the life of the bonds equals the total payments for interest minus the premium on bonds payable at the issue date.

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Definitions:

Level

A stage, degree, or magnitude in a hierarchical system, often used to describe intensity, development, or achievement.

Overextraction

The process of extracting natural resources faster than they can be replenished, leading to depletion or degradation of those resources.

User Cost

The cost of using a durable good or capital, considering factors like depreciation and the opportunity cost of not investing the funds elsewhere.

Extraction Cost

The expenses associated with removing natural resources from the earth or sea, including labor, equipment, and regulatory compliance costs.