Using the amortization procedure, the holder of the debt securities (the investor) records interest revenue each period at an amount equal to the _____ at the start of the period multiplied by the _____ applicable to that debt on the day the firm acquired the debt.The bonds are classified as held to maturity.

Question

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The amortization procedure involves recording interest revenue each period at an amount equal to the carrying value of the debt at the start of the period multiplied by the market rate of interest applicable to that debt on the day the firm acquired the debt. The applicable federal rate of interest may be relevant for tax purposes, but it is not used in calculating interest revenue. The market value and present value of the debt are not relevant for this calculation. The bonds being held to maturity means that the investor does not intend to sell them before they mature, which is why the amortization procedure is used to gradually reduce the carrying value of the debt to its face value over time.

Using the Amortization Procedure, the Holder of the Debt Securities