Question

Bonds were issued at a discount. In the bond amortization schedule:

A. The reduction in the discount is less with each successive interest payment.
B. The interest expense is less with each successive interest payment.
C. The total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid.
D. The outstanding balance (book value) of the bonds declines eventually to face value.

Answer 1

Answer: The correct answer is "C. The total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid."

Explanation: When the bonds are issued at a discount, in the bond amortization schedule the total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid.