Question

Which one of the following is not correct? For debt issued at par: interest expense reported on the income statement equals the cash paid for interest. For bond repurchases: Gain (loss) on bond repurchase = Cash paid to repurchase Net book value of bonds. For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of the discount. For debt issued at a premium, interest expense reported on the income statement equals cash interest payment less amortization of the premium. None of the above

Answer 1

Answer:

The answer is For debt issued at a discount; interest expense reported on the income statement equals cash interest less amortization of the discount

Explanation:

Effective interest method is an accounting practice used to discount a bond. This method is used for bonds sold at a discount; the amount of the bond discount is amortized to interest expense over the bond's life. As a book value increases, the amount of interest expense increase.