Cabal Company issued debentures with a face interest rate of 6 percent and a market interest rate of 5 percent.How will interest expense compare to the cash interest paid each period?

Question

Quizplus · Accepted Answer

Since the market interest rate is lower than the face interest rate, the company will have to pay less in cash interest expenses than what is reflected in the debentures. Therefore, the cash interest paid each period will be less than the interest expense recorded.

Cabal Company Issued Debentures with a Face Interest Rate of 6