APB Opinion No. 21 specifies that, regarding the amortization of a premium or discount on a debt security, the
a. effective-interest method of allocation must be used.
b. straight-line method of allocation must be used.
c. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained.
d. par value method must be used and therefore no allocation is necessary.
Answer: effective-interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained
An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a
a. debit to Available-for-Sale Securities.
b. debit to the discount account.
c. debit to Interest Revenue.
d. None of these answers are correct.
Answer: debit to Available-for-Sale Securities
Which of the following is correct about the effective-interest method of amortization?
a. The effective-interest method applied to investments in debt securities is different from that applied to bonds payable.
b. Amortization of a discount decreases from period to period.
c. Amortization of a premium decreases from period to period.
d. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.
Answer: The effective-interest method produces a constant rate of return on the book value of the investment from period to period
