Question

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Answer 1

Answer:

Greater than the interest expense

Explanation:

Based on the information given the CASH PAID is GREATER THAN THE INTEREST EXPENSE reason been that at every subsequent interest payment date the CASH PAYMENT does not change which means that the CASH PAID tend to remains the same but interest expense on the other hand tend to decreases at every interest payment date which inturn means that CASH PAID will be greater than the interest expense as the time passed by.

Answer 2

There are different kinds of bond. When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is Less than the interest expense.

• The effective interest method is often applied or used to discount, or write a bond off.

The amount of the bond that is often discounted is said to be amortized to interest expense over the bond's life.

Therefore as a bond's book value increases, the amount of interest expense also increases.

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