Asked by Carissa Gulli on May 16, 2024
Verified
Interest expense recognized each period on zero-coupon bonds sold at a discount is equal to the
A) credit to Cash
B) difference between the cash payment and the discount amortization
C) credit to Discount on Bonds Payable
D) sum of the cash payment and the discount amortization
Zero-Coupon Bonds
Bonds that do not pay periodic interest payments, instead being sold at a discount from their face value and maturing at said value.
Discount Amortization
Discount Amortization refers to the process of gradually reducing the book value of a bond discount over the life of the bond until it reaches its par value.
Interest Expense
This represents the cost incurred by an entity for borrowed funds, which can include loans, bonds, or lines of credit.
- Acquire knowledge on the principles and application of both straight-line and effective interest methods used in the amortization of bonds.
- Apply the effective interest method to compute interest expense and amortization of bond discount/premium.
Verified Answer
Learning Objectives
- Acquire knowledge on the principles and application of both straight-line and effective interest methods used in the amortization of bonds.
- Apply the effective interest method to compute interest expense and amortization of bond discount/premium.
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