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 for bonds sold at a premium.

Question

Quizplus · Accepted Answer

The effective interest method of amortization results in the amount of discount or premium amortized increasing over time. This is because the method applies a constant interest rate to the carrying amount of the bond, which changes as the discount or premium is amortized, leading to a gradual increase in the amount of amortization each period.

When the Effective Interest Method of Amortization Is Used,what Happens