When a bond is issued at a discount, the amount of interest expense for an interest period is calculated by
A)multiplying the carrying amount times the market interest rate.
B)multiplying the carrying amount times the coupon interest rate.
C)multiplying the face amount of the bonds by the coupon interest rate.
D)multiplying the face amount of the bonds by the market interest rate.

Question

Quizplus · Accepted Answer

When a bond is issued at a discount, its carrying amount is less than its face value. Interest expense is calculated as the product of the carrying amount of the bond multiplied by the market interest rate. This is because the market interest rate is the rate at which investors demand to be compensated for investing in a bond that is priced below its face value. The interest expense is then added to the bond's carrying amount at the end of each interest period to determine its new carrying amount.

When a Bond Is Issued at a Discount, the Amount