Asked by Bradley Fabretti on Jun 25, 2024
Verified
Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.
Amortization
The process of spreading out a loan into a series of fixed payments over time or the gradual writing off of the initial cost of an intangible asset.
Bond Premiums
The amount by which the price of a bond exceeds its face value.
Discounts
Reductions in price offered to customers, often as an incentive to increase sales or prompt early payment.
- Comprehend the impact of amortizing bond premiums or discounts on the interest expense.
Verified Answer
SD
Scott DrakeJun 27, 2024
Final Answer :
True
Explanation :
Amortization is indeed the process of allocating bond premiums and discounts to interest expense over the life of the bond issue. This is done to ensure that the effective interest rate of the bond reflects the market interest rate at the time of issuance.
Learning Objectives
- Comprehend the impact of amortizing bond premiums or discounts on the interest expense.