Question

Bond Premiums and Discounts For the issuer of a 10-year term bond, the amount of amortization...

Bond Premiums and Discounts

For the issuer of a 10-year term bond, the amount of amortization using the effective interest method would increase each year if the bond was sold at a:

a.

Discount Premium
Yes Yes

b.

Discount Premium
Yes No

c.

Discount Premium
No No

d.

Discount Premium
No Yes
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Homework Answers

Answer #1

The correct answer is

D)

Discount Premium

No Yes

Explanation

Amortization under bond issued at premium increases each year because with each payment carrying value of the bond decreases, so the interest expense also decreases, when the corporation pay annual interest payment remaining portion after the interest expense is amortized from premium, since the amount of interest decreases each period, so the amount allocated from the apyment to the premium amortization increases.

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