If bonds are issued at a discount:
A)the amortization of the discount will increase interest expense.
B)the amortization of the discount will decrease interest expense.
C)the amortization of the discount has no affect on interest expense.
D)none of the above occur.

Question

Quizplus · Accepted Answer

When bonds are issued at a discount, the amortization of the discount will increase interest expense over the life of the bond. This is because the discount represents a reduction in the amount of cash received by the issuer, and therefore has the effect of increasing the effective interest rate on the bond. As a result, the amount of interest expense recognized each year will be higher than it would be if the bond had been issued at face value.

If Bonds Are Issued at a Discount