How will component change under the effective interest

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Problem 1: An amortized premium is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change under the effective interest method as the bond approaches maturity?

a. Remain constant
b. Increase
c. Decrease
d. Not enough information given to decide

Problem 2: Which of the following statements about bonds is correct?

a. The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium.
b. The cash interest paid is calculated as the bond face value × the effective rate of interest.
c. The cash interest paid is calculated as the bond face value × the face rate of interest.
d. The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

Reference no: EM132826443

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