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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period

  1. minus the premium amortization for the period.
  2. plus the premium amortization for the period.
  3. plus the discount amortization for the period.
  4. minus the discount amortization for the period.

To determine

Concept introduction:

Bonds Payable:

Bonds payable represents the large-scale loan taken by the business for a major capital requirement. Bonds payable are issued to the public for raising the funds. Bonds are issued in the form of securities and bonds are highly regulated form of debt.

To choose:

The correct Statement about interest expense when bonds are issued at discount.

Explanation

Explanation for correct answer:

The effect of premium and discount on bonds interest expense is shown as below:

  • The amortization of the premium decreases the interest expense.
  • The amortization of the discount increases the interest expense.

When the bonds are issued at premium, the interest expense is calculated as addition of interest paid and amortization of premium on bonds. Hence the correct option is a.

Explanation for incorrect answers:

b...

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