CHAPTER 20 - EFFECTIVE INTEREST METHOD

Problem 20-1 (IAA) Enormous Company

Enormous Company acquired P6,000,000 12% bonds on February 1, 2020 for P5,486,000 to be held as financial asset
at amortized cost.

The bonds pay interest annually on February 1 and mature on February 1, 2024. The bonds are acquired to yield a
15% effective rate.

The fiscal period for the entity is the calendar period. Amortization is done following the effective interest method.

On May 1, 2022, Enormous Company sold all the bonds at 105 plus accrued interest.

Required:
Prepare journal entries for 2023 and 2024.

ANSWER:

Date Interest Received Interest Income Discount Amortization Carrying Amount

02/01/23 5,486,000

02/01/24 720,000 822,900 102,900 5,588,900

02/01/25 720,000 838,335 118,335 5,707,235

2023
Feb. 1 Investment in bonds 5,486,000
Cash 5,486,000

Dec 31 Accrued interest receivable 660,000

Interest Income 660,000
(720,000 x 12% x 11/12)

Dec 31 Investment in bonds 94,325

Interest Income 94,325
(102,900 x 11/12)

2024
Jan 1 Interest Income 660,000
Accrued interest receivable 660,000

Feb 1 Cash 720,000

Interest Income 720,000

May 1 Investment in bonds 29,583.75

(118,335 x 3/12)
Interest Income 29,583.75

May 1 Cash 6,480,000

Investment in bonds 5,618,483.75
 Interest Income 180,000
Gain on Sale of Bonds 681,516.25

Selling Price (6,000,000 x 105%) 6,300,000.00

Add: Interest Income (720,000 x 3/12) 180,000.00
Cash Received 6,480,000.00

Carrying Amount, 02/01/24 5,588,900.00

Add: Discount Amortization, Feb. - May 2024 29,583.75
Carrying Amount, 05/01/24 5,618,483.75

Selling Price 6,300,000.00

Less: Carrying Amount, 05/01/24 5,618,483.75
Gain on Sale of Bonds 681,516.25

Problem 20-2 (IAA) - Flexible Company

On January 1, 2023, Flexible Company acquired for P5,241,500 the entire P5,000,000 12% bond issue of another
entity to be held as financial asset at amortized cost.

Bonds of P1,000,000 mature at annual interval beginning December 31, 2023.

Interest is payable annually on December 31. The bonds have a 10% effective rate.

Required:
Prepare journal entries for 2023 and 204 using the effective interest method.

ANSWER:

Date Interest Interest Income Premium Principal Payment Carrying Amount

Received Amortization

01/01/23 5,241,500

12/31/23 600,000 524,150 75,850 1,000,000 4,165,650

12/31/24 480,000 416,565 63,435 1,000,000 3,102,215

2023
Jan 1 Investment in bonds 5,241,500
Cash 5,241,500

Dec 31 Cash 600,000

Interest Income 600,000
(5,000,000 x 12%)

Dec 31 Interest Income 75,850

Investment in bonds 75,850

Dec 31 Cash 1,000,000

Investment in bonds 1,000,000
2024
Dec 31 Cash 480,000
Interest Income 480,000
(4,000,000 x 12%)

Dec 31 Interest Income 63,435

Investment in bonds 63,435

Dec 31 Cash 1,000,000

Investment in bonds 1,000,000

Problem 20-3 (IAA) - Portugal Company

On January 1, 2023, Portugal Company purchased bonds with face amount of ₱8,000,000 for ₱7,679,000 as a
long-term investment. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%.

The bonds mature at the rate of ₱2,000,000 annually every December 31 and the interest is payable annually also
every December 31. The entity used the effective interest method of amortizing discount.

Required:
a. Prepare journal entries for 2023 and 2024.
B. Determine the carrying amount of the bond investment on December 31, 2024.
ANSWER:

Date Interest Interest Income Discount Principal Payment Carrying Amount

Received Amortization

01/01/23 7,679,000

12/31/23 800,000 921,480 121,480 2,000,000 5,800,480

12/31/24 600,000 696,057.60 96,057.60 2,000,000 3,896,537.60

Requirement A
2023
Jan 1 Investment in bonds 7,679,000
Cash 7,679,000

Dec 31 Cash 800,000

Interest Income 800,000
(8,000,000 x 10%)

Dec 31 Investment in bonds 121,480

Interest Income 121,480

Dec 31 Cash 2,000,000

Investment in bonds 2,000,000

2024
Dec 31 Cash 600,000
 Interest Income 600,000
(6,000,000 x 10%)

Dec 31 Investment in bonds 96,057.60

Interest Income 96,057.60

Dec 31 Cash 2,000,000

Investment in bonds 2,000,000

Requirement B
Acquisition Cost, 01/01/23 7,679,000

Add: Discount Amortization, 12/31/23 121,480

Total 7,800,480

Less: Principal Payment, 12/31/23 (2,000,000)

Carrying Amount, 12/31/23 5,800,480

Add: Discount Amortization, 12/31/24 96,057.60

Total 5,896,537.60

Less: Principal Payment, 12/31/24 (2,000,000)

Carrying Amount, 12/31/24 3,896,537.60

Problem 20-4 (IFRS) - Michelle Company

On January 1, 2023, Michelle Company purchased bonds with face amount of P5,000,000. The entity paid
P4,600,000 plus transaction cost of P142,000 for the bond investment.

The business model in managing the financial asset is to collect contractual cash flows that are solely payments of
principal and interest and also to sell the bonds in the open market.

The bonds mature on December 31, 2021 and pay 6% interest annually on December 31 each year with 8% effective
yield.

The bonds are quoted at 105 on December 31, 2023 and 110 on December 31, 2024.

The bonds are redeemed at face amount on December 31, 2025.

Required:
a. Prepare an amortization table for the bond discount.
b. Prepare journal entries for 2023, 2024 and 2025.

ANSWER:
Requirement A

Date Interest Received Interest Income Discount Amortization Carrying Amount

01/01/23 4,742,000
 12/31/23 300,000 379,360 79,360 4,821,360

12/31/24 300,000 385,709 85,709 4,907,069

12/31/25 300,000 392,931 92,931 5,000,000

Requirement B
2023
Jan 1 Financial asset - FVOCI 4,742,000
Cash 4,742,000

Dec 31 Cash 300,000

Interest Income 300,000
(5,000,000 x 6%)

Dec 31 Financial asset - FVOCI 79,360

Interest Income 79,360

Dec 31 Financial asset - FVOCI 428,640

Unrealized Gain - OCI 428,640
Market Value (5,000,000 x 105%) 5,250,000
Less: Carrying Amount, 12/31/23 4,821,360
Unrealized Gain, 12/31/23 428,640

2024
Dec 31 Cash 300,000
Interest Income 300,000

Dec 31 Financial asset - FVOCI 85,709

Interest Income 85,709

Dec 31 Financial asset - FVOCI 164,291

Unrealized Gain - OCI 164,291
Market Value (5,000,000 x 110%) 5,500,000
Less: Carrying Amount, 12/31/24 4,907,069
Cumulative unrealized gain 592,931
Less: Unrealized Gain, 2023 428,640
Increase in unrealized gain, 12/31/24 164,291

2025
Dec 31 Cash 300,000
Interest Income 300,000

Dec 31 Financial asset - FVOCI 92,931

Interest Income 92,931

Dec 31 Cash 5,000,000

Unrealized Gain - OCI (cumulative) 592,931
Financial asset - FVOCI 5,592,931
Problem 20-5 (IAA) Reign Company
On January 1, 2023, Reign Company purchased 12% bonds with face amount of P5,000,000 for P5,380,000. The
bonds provide an effective yield of 10%.

The bonds are dated January 1, 2023, mature on January 1, 2028 and pay interest annually on December 31 each year.

The bonds are quoted at 120 on December 31, 2023 and 115 on December 31, 2024.

The entity has elected the fair value option for the bond investment.

Required:
Prepare journal entries for 2023 and 2024.

ANSWER:
2023
Jan 1 Financial Asset - FVPL 5,380,000
Cash 5,380,000

Dec 31 Cash 600,000

Interest Income 600,000
(5,000,000 x 12%)

Dec 31 Financial Asset - FVPL 620,000

Gain from change in fair value 620,000
Market Value (5,000,000 x 120%) 6,000,000
Carrying Amount 5,380,000
Gain from change in fair value 620,000

2024
Dec 31 Cash 600,000
Interest Income 600,000

Dec 31 Loss from change in fair value 250,000

Financial Asset - FVPL 250,000
Market Value (5,000,000 x 115%) 5,750,000
Carrying Amount 6,000,000
Loss from change in fair value (250,000)

Problem 20-6 (IAA) - Gelyka Company

On January 1, 2023, Gelyka Company purchased 12% bonds with face amount of P5,000,000 for P5,500,000
including transaction cost of P100, 000. The bonds provide an effective yield of 10%.

The bonds are dated January 1, 2023 and pay interest annually on December 31 of each year.

The bonds are quoted at 115 on December 31, 2023.

The entity has irrevocably elected to use the fair value option.
Required:
1. Prepare journal entries for 2023.
2. Determine the total amount of income from the investment for 2023.
3. Determine the carrying amount of the investment on December 31, 2023.

ANSWER:
Requirement 1
2023
Jan 1 Financial Asset - FVPL 5,400,000
Transaction Cost 100,000
Cash 5,500,000

Dec 31 Cash 600,000

Interest Income 600,000
(5,000,000 x 12%)
Dec 31 Financial asset - FVPL 350,000
Gain from change in fair value 350,000
Market Value (5,000,000 x 115%) 5,750,000
Carrying Amount 5,400,000
Gain from change in fair value 350,000

Requirement 2
Gain from change in fair value 350,000
Interest Income 600,000
Total Amount of Income for 2023 950,000

Requirement 3
Carrying Amount, 12/31/23 5,750,000

Problem 20-7 (IAA) - Russia Company

At the beginning of current year, Russia Company purchased 5-year bonds with face amount of P8,000,000 and
stated interest of 10% per year payable semiannually January 1 and July 1. The bonds were acquired to yield 8%.

Present value of an annuity of 1 for 1 period at 5% 7.72

Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.68

Required:
a. Determine the market price of the bonds
b. Prepare journal entries for the current year. The effective interest method of amortization is used.
C. Determine the carrying amount of the bond investment at year-end.

ANSWER:
Requirement A
PV of principal (8,000,000 x 0.68) 5,440,000
PV of future interest payments (400,000 x 8.11) 3,244,000
Market Price of the bonds 8,684,000

Requirement B
 Date Interest Received Interest Income Premium Amortization Carrying Amount

01/01 8,684,000

07/01 400,000 347,360 52,640 8,631,360

12/31 400,000 345,254 54,746 8,576,614

Jan 1 Investment in bonds 8,684,000

Cash 8,684,000

July 1 Cash 400,000

Interest Income 400,000
(8,000,000 x 10% x 6/12) or (8,000,000 x 5%)

July 1 Interest Income 52,640

Investment in bonds 52,640

Dec 31 Accrued interest receivable 400,000

Interest Income 400,000

Dec 31 Interest Income 54,746

Investment in bonds 54,746

Requirement C
Present Value of the bonds 8,684,000
Less: Premium Amortization (52,640 + 54,746) 107,386
Carrying Amount at year end 8,576,614

Problem 20-8 (IAA) - Labyrinth Company

On January 1, 2023, Labyrinth Company purchased serial bonds with face amount of P3,000,000 and stated 12%
interest payable annually every December 31.

The bonds are to be held as financial assets at amortized cost with a 10% effective yield. The bonds mature at an
annual installment of P1,000,000 every December 31.

Present value of 1 at 10% for one period 0.91

Present value of 1 at 10% for two periods 0.83
Present value of 1 at 10% for three periods 0.75

Required:
1. Determine the market price of the bonds.
2. Prepare journal entries for 2023. The effective interest method of amortization is used.
3. Determine the carrying amount of the bond investment on December 31, 2023.

ANSWER:
Requirement 1
Principal due on Dec. 31, 2023 1,000,000
Interest Received on Dec. 31, 2023 (3,000,000 x 12%) 360,000
Total Cash Flows - Dec. 31, 2023 1,360,000

Principal due on Dec. 31, 2024 1,000,000

Interest Received on Dec. 31, 2024 (2,000,000 x 12%) 240,000
Total Cash Flows - Dec. 31, 2024 1,240,000

Principal due on Dec. 31, 2025 1,000,000

Interest Received on Dec. 31, 2025 (1,000,000 x 12%) 120,000
Total Cash Flows - Dec. 31, 2025 1,120,000

Dec. 31, 2023 (1,360,000 x 0.91) 1,237,600

Dec. 31, 2024 (1,240,000 x 0.83) 1,029,200
Dec. 31, 2025 (1,120,000 x 0.75) 840,000
Market Price of the bonds 3,106,800

Requirement 2
2023
Jan 1 Investment in bonds 3,106,800
Cash 3,106,800

Dec 31 Cash 360,000

Interest Income 360,000

Dec 31 Interest Income 49,320

Investment in bonds 49,320
Interest Received 360,000
Interest Income (3,106,800 x 10%) 310,680
Premium Amortization 49,320

Dec 31 Cash 1,000,000

Investment in bonds 1,000,000

Requirement 3
Acquisition Cost 3,106,800
Less: Premium Amortization for 2023 (49,320)
Total 3,057,480
Less: Principal Payment (1,000,000)
Carrying Amount, 12/31/23 2,057,480

Problem 20-9 (AICPA Adapted) - Paradox Company

On January 1, 2023, Paradox Company purchased 9% bonds with a face amount of P4,000,000 for P3,756,000 to
yield 10%.

The bonds are dated January 1, 2023, mature on December 31, 2032, and pay interest annually on December 31. The
bonds are measured at amortized cost.

What amount should be reported as interest revenue for 2023?

a. 400,000
b. 344,400
c. 360,000
d. 375,600

ANSWER:
d. 375,600
Interest Revenue for 2023 (3,756,000 x 10%) 375,600

Problem 20-10 (AICPA Adapted) - East Company

On July 1, 2023, East Company purchased P5,000,000 face amount, 8% bonds for P4,615,000 to yield 10% per year to
be held as financial asset at amortized cost. The bonds pay interest semiannually on January 1 and July 1.

On December 31, 2023, what amount should be reported as interest receivable?

a. 184,600
b. 250,000
c. 230,750
d. 200,000

ANSWER:
d. 200,000
Interest Receivable, 12/31/23 (5,000,000 x 8% x 6/12) 200,000

Problem 20-11 (AICPA Adapted) - Cody Company

On July 1, 2023, Cody Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held as
financial asset at amortized cost.

Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the effective
interest method.

What is the carrying amount of the bond investment on December 31, 2023?
a. 1,207,900
b. 1,198,000
c. 1,195,920
d. 1,193,050

ANSWER:
c. 1,195,920
Acquisition Cost 1,198,000
Less: Premium Amortization
Interest Received (1,000,000 x 10% x 6/12) 50,000
Interest Income (1,198,000 x 8% x 6/12) (47,920) (2,080)
Carrying Amount, 12/31/23 1,195,920

Problem 20-12 (AICPA Adapted) - York Company

On July 1, 2023, York Company purchased P1,000,000 of 8% bonds for P946,000, including accrued interest of
P40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2028, and pay interest
annually on January 1. The bonds are measured at amortized cost.
On December 31, 2023, what is the carrying amount of the bond investment?
a. 911,300
b. 916,600
c. 953,300
d. 960,600

ANSWER:
a. 911,300
Acquisition Cost 946,000
Less: Accrued Interest 40,000
Cost of Bond Investment 906,000
Add: Discount Amortization
Interest Income (906,000 x 10% x 6/12) 45,300
Interest Received (1,000,000 x 8% x 6/12) (40,000) 5,300
Carrying Amount, 12/31/23 911,300

Problem 20-13 (AICPA Adapted) - Purl Company

On January 1, 2023, Purl Company purchased P5,000,000 face amount 8% bonds for P4,562,000 to be held as
financial asset at amortized cost. The bonds were purchased to yield 10% interest.

The bonds mature on January 1, 2029 and pay interest annually on December 31. The interest method of
amortization is used.

What is the carrying amount of the bond investment on December 31, 2024?
a. 4,680,020
b. 4,662,000
c. 4,618,200
d. 4,562,000

ANSWER:
a. 4,680,020
Acquisition Cost 4,562,000
Add: Discount Amortization for 2023
Interest Income (4,562,000 x 10%) 456,200
Interest Received (5,000,000 x 8%) (400,000) 56,200
Carrying Amount, 12/31/23 4,618,200
Add: Discount Amortization for 2024
Interest Income (4,618,200 x 10%) 461,820
Interest Received (5,000,000 x 8%) 400,000 61,820
Carrying Amount, 12/31/24 4,680,020

Problem 20-14 (AICPA Adapted) - Pell Company

On July 1, 2023, Pell Company purchased ten-year, 8% bonds with a face amount of P5,000,000 for P4,200,000 to be
held as financial asset at amortized cost. The bonds mature on June 30, 2031 and pay interest semiannually on June
30 and December 31.

Using the effective interest method, the entity recorded bond discount amortization of 18,000 for the six months
ended December 31, 2023.
What amount should be reported as interest income for 2023?
a. 168,000
b. 182,000
c. 200,000
d. 218,000

ANSWER:
d. 218,000
Interest received, July 1 - December 31, 2023 (5,000,000 x 8% x 6/12) 200,000
Discount amortization for six months 18,000
Interest income for 2023 218,000

Problem 20-15 (IFRS) - Dumaguete Company

On January 1, 2023, Dumaguete Company purchased bonds with face amount of P4, 000,000 for P4,206,000. The
business model in managing the financial asset is to collect contractual cash flows that are solely payment of principal
and interest and also to sell the bonds in the open market.

The entity has not elected the fair value option of measuring financial asset.

The bonds mature on December 31, 2025 and pay 10% interest annually on December 31 each year with 8% effective
yield.

The bonds are quoted at 95 on December 31, 2023 and 90 on December 31, 2024.

1. What amount of unrealized loss should be reported as component of other comprehensive income in 2023?
a. 342,480
b. 400,000
c. 469,520
d. 0

Date Interest Received Interest Income Premium Amortization Carrying Amount

01/01/23 4,206,000

12/31/23 400,000 336,480 63,520 4,142,480

12/31/24 400,000 331,398 68,602 4,073,878

12/31/25 400,000 326,122 73,878 4,000,000

ANSWER:
a. 342,480
Acquisition Cost 4,206,000
Less: Premium Amortization
Interest Received (4,000,000 x 10%) 400,000
Interest Income (4,206,000 x 8%) 336,480 63,520
Carrying Amount, 12/31/23 4,142,480

Market Value (4,000,000 x 95%) 3,800,000

Carrying Amount, 12/31/23 4,142,480
Unrealized Loss on 2023 - OCI (342,480)

2. What amount of unrealized loss should be reported as component of other comprehensive income in 2024?
a. 483,878
b. 131,398
c. 200,000
d. 0

ANSWER:
b. 131,398
Market Value (4,000,000 x 90%) 3,600,000
Carrying Amount, 12/31/24 4,073,878
Cumulative unrealized loss (473,878)
Less: Unrealized Loss on 2023 - OCI 342,480
Increase in unrealized loss, 12/31/2024 131,398

3. What is the carrying amount of the bond investment in December 31, 2024?
a. 4,206,000
b. 3,600,000
c. 3,800,000
d. 4,673,878

ANSWER:
b. 3,600,000
Carrying Amount (4,000,000 x 90%) 3,600,000

4. Prepare journal entries for 2023 and 2024.

2023
Jan 1 Financial Asset - FVOCI 4,206,000
Cash 4,206,000

Dec 31 Cash 400,000

Interest income 400,000

Dec 31 Interest Income 63,520

Financial Asset - FVOCI 63,520

Dec 31 Unrealized loss - OCI 342,480

Financial Asset - FVOCI 342,480

2024
Dec 31 Cash 400,000
Interest Income 400,000

Dec 31 Interest Income 68,602

Financial Asset - FVOCI 68,602

Dec 31 Unrealized loss - OCI 131,398

 Financial Asset - FVOCI 131,398

Problem 20-16 (IFRS) - Love Company

Love Company purchased 5,000,000 of 8%, 5-year bonds on January 1, 2023 with interest payable on June 30 and
December 31. The bonds were purchased for P5,208,000 at an effective interest rate of 7%.

The business model for this investment is to collect contractual cash flows and sell the bonds in the open market. On
December 31, 2016, the bonds were quoted at 106.

1. What amount of interest income should be reported for 2023?

a. 400,000
b. 200,000
c. 364,560
d. 363,940

ANSWER:
d. 363,940

Date Interest Received Interest Income Premium Amortization Carrying Amount

01/01/23 5,208,000

06/30/23 200,000 182,280 17,720 5,190,280

12/31/23 200,000 181,660 18,340 5,171,940

06/30/23 200,000 181,018 18,982 5,152,958

Interest Income, 06/30/23 182,280

Interest Income, 12/31/23 181,660
Total Interest Income for 2023 363,940

2. What amount should be recognized in OCI in the statement of comprehensive income for 2023?
a. 300,000
b. 127,440
c. 128,060
d. 92,000

ANSWER:
c. 128,060
Market Value (5,000,000 x 106%) 5,300,000
Carrying Amount, 12/31/23 5,171,940
Unrealized Gain on 2023 - OCI 128,060

Problem 20-17 (AICPA Adapted) - Dean Company

On January 1, 2023, Dean Company purchased ten-year bonds with a face amount of P5,000,000 with effective yield
of 10%.

The stated interest rate is 8% per year payable semiannually June 30 and December 31.
Present value of 1 for 10 periods at 10% 0.39
Present value of 1 for 20 periods at 5% 0.38
Present value of an annuity of 1 for 10 periods at 10% 6.15
Present value of an annuity of 1 for 20 periods at 5% 12.46

1. What is the market price of the bonds?

a. 3,487,400
b. 5,500,000
c. 5,000,000
d. 4,392,000

ANSWER:
d. 4,392,000
PV of Principal (5,000,000 x .38) 1,900,000
PV of future interest payments (200,000 x 12.46) 2,492,000
Market Price of the bonds 4,392,000

2. What is the carrying amount of the bond investment on December 31, 2023?
a. 4,372,400
b. 4,391,020
c. 4,353,780
d. 4,352,800

ANSWER:

Date Interest Received Interest Income Discount Amortization Carrying Amount

01/01/23 4,392,000

06/30/23 200,000 219,600 19,600 4,411,600

12/31/23 200,000 220,580 20,580 4,432,180

Acquisition Cost 4,392,000

Add: Discount Amortization, June 2023
Interest Income (4,392,000 x 5%) 219,600
Interest Received (5,000,000 x 4%) 200,000 19,600
Carrying Amount, 06/31/23 4,411,600
Add: Discount Amortization, Dec 2023
Interest Income (4,411,600 x 5%) 220,580
Interest Received (5,000,000 x 4%) 200,000 20,580
Carrying Amount, 12/31/23 4,432,180
Problem 20-18 Multiple Choice (IAA)
1. The actual interest earned by the bondholder is
a. Effective rate
b. Yield rate
c. Market rate
d. Effective rate, yield rate or market rate
2. The interest rate written on the face of the bond is known as
a. Nominal rate
b. Coupon rate
c. Stated rate
d. Nominal rate, coupon rate, or stated rate

3. To compute the price to pay for a bond, what present value concept is used?
a. The present value of 1
b. The present value of an ordinary annuity of 1
c. The present value of 1 and present value of an ordinary annuity of 1
d. The future value of 1

4. Bonds usually sell at discount when investors are willing to invest in bonds
a. At the stated interest rate
b. At rate lower than the stated interest rate
c. At rate higher than the stated interest rate
d. Because a capital gain is expected

5. Bonds usually sell at a premium

a. When market rate is greater than stated rate
b. When stated rate is greater than market rate
c. When the price of the bonds is greater than maturity amount
d. In none of these cases

6. The effective interest rate on bond is lower than the stated rate when bond sells
a. At maturity value
b. Above face amount
c. Below face amount
d. At face amount

7. The effective interest rate on bond is higher than the stated rate when bond sells
a. At face amount
b. Above face amount
c. Below face amount
d. At maturity value

8. The interest method of amortizing discount provides for

a. Increasing amortization and increasing interest income
b. Increasing amortization and decreasing interests income
c. Decreasing amortization and increasing interest income
d. Decreasing amortization and decreasing interest income

9. The interest method of amortizing premium provides for

a. Increasing amortization and increasing interest income
b. Increasing amortization and decreasing interest income
c. Decreasing amortization and decreasing interest income
d. Decreasing amortization and increasing interest income

10. When the interest payment dates of bond are May 1 and November, and a bond is purchased on June 1, the cash
paid by the investor would be
a. Decreased by accrued interest from June 1 to November 1
b. Decreased by accrued interest from May 1 to June 1
c. Increased by accrued interest from June 1 to November 1
d. Increased by accrued interest from May 1 to June 1