Asked by Michelle Mazur on Apr 28, 2024
Verified
Under the straight-line amortization method, interest expense on a bond sold at a premium is equal to the
A) interest paid plus bond premium 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 premium amortization
Straight-Line Amortization
A method of evenly spreading the cost of an intangible asset over its useful life.
Bond Premium Amortization
The gradual expense recognition over time of the premium paid above the par value for a bond.
Interest Expense
The cost incurred by an entity for borrowed funds, reflected as a charge against earnings.
- Understand the principles and application of the straight-line and effective interest methods of bond amortization.
Verified Answer
SK
Sudhakar KanagalaMay 01, 2024
Final Answer :
D
Explanation :
Under the straight-line amortization method, the bond premium is amortized evenly over the life of the bond. Therefore, the bond premium amortization is subtracted from the interest paid to arrive at the interest expense. Hence, the answer is option D, which says interest paid minus bond premium amortization.
Learning Objectives
- Understand the principles and application of the straight-line and effective interest methods of bond amortization.
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