When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will
A) increase only if the bonds were issued at a discount.
B) decrease only if the bonds were issued at a premium.
C) increase only if the bonds were issued at a premium.
D) increase if the bonds were issued at either a discount or a premium.

Question

Quizplus · Accepted Answer

The effective-interest method results in a varying amount of interest expense over the life of the bond because it applies a constant interest rate to the carrying amount of the bond, which changes as the bond premium or discount is amortized. This means the amortization amount will increase over time whether the bonds were issued at a discount (because the carrying amount increases towards face value) or at a premium (because the carrying amount decreases towards face value).

When the Effective-Interest Method Is Used to Amortize Bond Premium