41. Issuing bonds at a discount has the effect of increasing : 2045614
41. Issuing bonds at a discount has the effect of increasing interest expense above the face amount of interest.
42. A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.
43. Total interest cost for a bond issued at a premium equals the total of the periodic interest payments plus the premium.
44. The market interest rate is the rate that an issuer of bonds actually will have to bear and that an investor (purchaser) actually will earn over the bond's life.
45. Under the effective interest method of amortizing a bond discount, the bond interest expense recorded for each period decreases over the life of the bond.
46. When the effective interest method of amortization is used for a bond premium, the amount of premium to be amortized for a period is calculated by subtracting the amount of bond interest expense for the period from the amount of cash to be paid for interest for the same period.
47. The carrying value of a bond issued at a premium is calculated at any given point in time by adding the balance of the unamortized premium to the bond's face value.
48. When a bond has been issued at a discount, the carrying value at the end of one period is equal to the carrying value at the beginning of the period minus the amount of discount that was amortized during the period.
49. When the effective interest method of amortization is used, the amount of bond interest expense for a given period is calculated by multiplying the face interest rate by the bond's carrying value at the beginning of the given period.
50. Regardless of whether the straight-line method or the effective interest method is used, the carrying value of a term bond issued at a discount will increase continually over the life of the bond.