Asked by Meghan Suchy on Jun 14, 2024

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If bonds sell at a premium the interest expense recognized each year will be greater than the contractual interest rate.

Premium

An amount paid in addition to a standard price or rate, often for insurance or an enhanced level of service or coverage.

Interest Expense

The cost incurred by an entity for borrowed funds, recognized as a non-operating expense on the income statement.

Contractual Interest Rate

The agreed-upon rate of interest that is to be applied on the principal amount of loans, bonds, or other forms of debt as specified within a contract.

  • Recognize the accounting treatments for bonds issued at a premium, discount, face value, and their subsequent interest expense recognition.
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Ongelique navarreJun 19, 2024
Final Answer :
False
Explanation :
When bonds sell at a premium, the interest expense recognized each year is less than the contractual interest rate because the premium effectively reduces the cost of borrowing over the life of the bond.