If Bonds Are Issued Initially at a Discount and the Straight-Line

question 15

Multiple Choice

If bonds are issued initially at a discount and the straight-line method of amortization is used for the discount, interest expense in the earlier years will be

• A) Greater than if the compound interest method were used
• B) The same as if the compound interest method were used
• C) Less than if the compound interest method were used
• D) Less than the amount of the interest payments

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Definitions:

Fixed Manufacturing Cost

Expenses that do not change with the level of production, such as rent, salaries, and equipment depreciation in a manufacturing setting.

Production Volume

The amount of products a factory or plant has manufactured in a given time frame; it measures the output level of production activities.

Factory Utility Cost

The expense associated with the utilities consumed in the production process, such as electricity, gas, and water.

Mixed Cost

A cost composed of a fixed component and a variable component that changes with the level of activity or production.