On January 2, 2010, Laura Co.issued 8% bonds with a face amount of $1, 000, 000 maturing on January 2, 2020.The bonds were issued to yield 12%, resulting in a discount.Laura incorrectly used the straight-line method instead of the effective interest method to amortize the discount.How is the carrying amount of the bonds affected by this error as of December 31, 2011?

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The use of the straight-line method to amortize the discount results in an equal amount of discount being amortized each year. This means that the carrying amount of the bonds will be overstated in the earlier years and understated in the later years. As of December 31, 2011, two years after the bonds were issued, the carrying amount will be overstated because the same amount of discount was amortized each year, even though the effective interest rate was higher than the coupon rate.