Which of the following statements is not correct regarding amortization when using the effective interest method (basis)?
A)Amortization of discount on bonds payable (bond discount)increases in later years relative to earlier years of a bond's life.
B)Amortization of premium on bonds payable (bond premium)increases in later years relative to earlier years of a bond's life.
C)Amortization of both premium on bonds payable (bond premium)and discount on bonds payable (bond discount)decreases in later years relative to earlier years of a bonds life.
D)Amortization of discount on bonds payable (bond discount)results in an increase in interest expense and in an increase in the bond's carrying value.

Question

Quizplus · Accepted Answer

Amortization of both premium and discount on bonds payable decreases in later years relative to earlier years of a bond's life when using the effective interest method. This is due to the fact that the effective interest rate applied to the bond decreases as the bond approaches maturity, leading to lower amounts of amortization of both premium and discount over time. Statement A is correct because the amortization of bond discount is higher in later years due to the increasing carrying value of the bond. Statement B is also correct because the amortization of bond premium is higher in later years due to the decreasing carrying value of the bond. Statement D is also correct because the amortization of bond discount leads to an increase in interest expense and an increase in the bond's carrying value.

Which of the Following Statements Is Not Correct Regarding Amortization