The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that
A) exceeds the amount of cash to be paid for interest for the period.
B) is less than the amount of cash to be paid for interest for the period.
C) has no predictable relationship with the amount of cash to be paid for interest for the period.
D) equals the amount of cash to be paid for interest for the period.

Question

Quizplus · Accepted Answer

When a company purchases a bond at a premium, it pays more to acquire the bond than the face value. This premium amount is amortized over the life of the bond as an interest expense. As a result, the amount of interest expense recognized on the income statement for an interest period will be less than the amount of cash paid for interest in that period. Therefore, the best choice is B, which states that the amount of interest expense recognized will be less than the amount of cash to be paid for interest for the period.

The Amortization of a Bond Premium Will Result in Reporting