Which one of the following statements about amortization of discounts and premiums is not correct?
A)Under straight-line amortization,when a bond is sold at a premium,the annual premium amortization is the total premium divided by the number of years until bond maturity.
B)When a bond is sold at a discount,interest expense recorded using the effective-interest method is less than the interest paid on the bond.
C)The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization.
D)When a bond discount is amortized using the effective-interest method,the promised interest payment is less than the interest expense,so the bond liability will increase as a result of the contra-liability account decreasing.

Question

Quizplus · Accepted Answer

Straight-line amortization results in equal amounts of amortization each period,the effective-interest method is preferred to the straight-line method,and the bond liability does increase (by reducing the contra-liability)when a discount is amortized using the effective-interest method.The effective interest method of amortization allocates a discount based on the carrying value of the bonds,so a bond issued at a discount would result in a higher interest expense than the amount of interest paid.

Which One of the Following Statements About Amortization of Discounts