The Tax Deductibility of Interest Expense on Bonds Makes the Effective

question 11

True/False

The tax deductibility of interest expense on bonds makes the effective cost of borrowing less than the amount of cash paid for interest.

---

Definitions:

General Journal Entry

An entry in the general journal that records financial transactions in the order they occur, detailing debit and credit entries for accounting.

Effective Interest Method

The effective interest method is an accounting practice used to amortize bond premiums or discounts over the life of the bond, producing a constant rate of interest over the period.

Semiannual Interest Date

The twice-yearly date on which interest payments are made to bondholders or lenders.

Discount

A reduction from the usual cost of something, often used as a sales strategy to encourage purchases.