Asked by Maria Mendez on Jun 19, 2024
Verified
Under the straight-line amortization method, interest expense on a bond sold at a discount is equal to the
A) interest paid plus bond discount amortization
B) interest rate times the book value of the bonds
C) interest rate times the face value of the bonds
D) interest paid minus bond discount amortization
Bond Discount Amortization
This is the process of gradually expensing the difference between a bond's face value and its purchase price over its life, reflecting an increase in the bond's book value.
Straight-Line Amortization
A method of uniformly reducing the book value of an intangible asset over its useful life.
Interest Expense
The expenditure faced by a company for financing through borrowed resources during a defined time.
- Comprehend the fundamentals and utilization of straight-line and effective interest techniques in bond amortization.
- Utilize the effective interest mechanism to compute interest expenses and for the amortization of bond discount or premium.
Verified Answer
JS
Jashanpal Singh BajwaJun 22, 2024
Final Answer :
A
Explanation :
Under the straight-line amortization method, the interest expense on a bond sold at a discount is calculated as the interest paid (coupon payment) plus the bond discount amortization. This approach spreads the discount evenly over the life of the bond, increasing the interest expense recognized in the income statement.
Learning Objectives
- Comprehend the fundamentals and utilization of straight-line and effective interest techniques in bond amortization.
- Utilize the effective interest mechanism to compute interest expenses and for the amortization of bond discount or premium.