When the effective-interest method of amortization is used, what happens to the amount of discount or premium amortized as a bond moves toward maturity?
A) The amount of discount or premium amortized each period decreases.
B) The amount of discount or premium amortized each period increases for bonds sold at a discount but decreases for bonds sold at a premium.
C) The amount of discount or premium amortized each period increases.
D) The amount of discount or premium amortized each period decreases for bonds sold a discount but increases

Question

Quizplus · Accepted Answer

Under the effective-interest method, the amount of discount or premium amortized each period increases as the bond approaches maturity because the interest expense is calculated based on the carrying amount of the bond, which changes over time.

When the Effective-Interest Method of Amortization Is Used, What Happens