Asked by Nitin Bhogaraju on May 25, 2024
Verified
Which statement is true?
A) The carrying amount of the bonds will increase each year if the bonds were issued at a discount.
B) The carrying amount of the bonds will increase each year if the bonds were issued at a premium.
C) Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used.
D) Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used.
Carrying Amount
The book value of an asset as recorded in an entity's financial statements, calculated as the original cost minus accumulated depreciation or amortization.
Bonds Issued
A financial instrument representing a loan made by an investor to a borrower, typically corporate or governmental, where the issuer commits to paying back the principal along with interest at a specified future date.
Straight-Line Method
A depreciation method that allocates an equal amount of the cost of an asset to each year of its useful life.
- Contrast the attributes of bonds marketed below face value, at face value, and above face value.
- Evaluate the influence of amortizing bond premium or discount on the book value of bonds.
Verified Answer
LS
Lavisha SareenMay 29, 2024
Final Answer :
A
Explanation :
When bonds are issued at a discount, the carrying amount increases each year as the discount is amortized to interest expense, bringing the carrying amount closer to the face value of the bonds over time.
Learning Objectives
- Contrast the attributes of bonds marketed below face value, at face value, and above face value.
- Evaluate the influence of amortizing bond premium or discount on the book value of bonds.