When the Effective Interest Method of Amortization Is Used for a Bond

question 173

Multiple Choice

When the effective interest method of amortization is used for a bond premium,the amount of interest expense for an interest period is calculated by multiplying the

• A)carrying value of the bonds at the beginning of the period by the face interest rate.
• B)face value of the bonds at the beginning of the period by the effective interest rate.
• C)carrying value of the bonds at the beginning of the period by the effective interest rate.
• D)face value of the bonds at the beginning of the period by the face interest rate.

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Definitions:

New Equity

New equity refers to funds raised by a company through the issuance of new shares in the equity market.

Interest Expense

The cost incurred by an entity for borrowed funds, often expressed as an annual rate.

Long-Term Debt

Borrowings that are due for repayment in more than one year's time, used to finance a company's operations beyond its immediate needs.

Marginal Tax Rates

The rate at which the last dollar of income is taxed, reflecting the percentage of tax applied to your income for each tax bracket in which you qualify.