Asked by Tatum Sobota on Jul 08, 2024
Verified
If a bond is purchased at a discount,then interest revenue using the effective interest method will be less than the cash interest received.
Effective Interest Method
A method of calculating the amortized cost of a bond or loan on the basis on an effective interest rate rather than the nominal rate.
Cash Interest
Interest payments made in cash to creditors or bondholders during a specific period.
- Comprehend the accounting procedures for bond investments and the effects of acquiring bonds at par value, below par (discount), or above par (premium).
Verified Answer
JF
JENNIFER FANELLIJul 12, 2024
Final Answer :
False
Explanation :
Using the effective interest method, interest revenue includes both the cash interest received and the amortization of the discount, making it higher than just the cash interest received.
Learning Objectives
- Comprehend the accounting procedures for bond investments and the effects of acquiring bonds at par value, below par (discount), or above par (premium).