If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
A) greater than if the straight-line method were used.
B) greater than the amount of the interest payments.
C)the same as if the straight-line method were used.
D) less than if the straight-line method were used.

Question

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
A) greater than if the straight-line method were used.
B) greater than the amount of the interest payments. 
C)the same as if the straight-line method were used.
D) less than if the straight-line method were used.

Quizplus · Accepted Answer

The effective-interest method of amortization results in a higher amount of interest expense in the earlier years of the bond's life compared to the straight-line method. This is because the effective-interest method allocates the bond premium or discount over the entire life of the bond based on a constant interest rate, while the straight-line method allocates it evenly over the life of the bond. Therefore, the interest expense will be greater than if the straight-line method were used.

If Bonds Are Issued Initially at a Premium and the Effective-Interest