In any given interest period, the amortization of a bond premium will cause interest
A) expense to be less than interest paid.
B) expense to be greater than interest paid.
C) payable to be less than interest expense.
D) payable to be greater than interest receivable.
E) expense to be equal to interest paid plus the premium amortization.

Question

Quizplus · Accepted Answer

Amortization of a bond premium reduces the amount of interest expense reported on the income statement because it effectively spreads the premium paid over the bond's life. The premium paid above the bond's face value decreases over time, lowering the net cost of borrowing, hence making the interest expense less than the actual interest paid.

In Any Given Interest Period, the Amortization of a Bond