With the effective interest method of amortization, the amortization of a bond premium results in a(n)

Question

Quizplus · Accepted Answer

With the effective interest method of amortization, the amortization of a bond premium results in a decrease in interest expense.
 When a bond is issued at a premium, it means that the bond is sold for more than its face value. Over the life of the bond, this premium must be amortized, which effectively reduces the amount of interest expense recognized in the income statement each period.
The effective interest method of amortization spreads out the bond premium over the life of the bond in a way that reflects a constant rate of interest on the remaining balance of the bond. As the bond premium is amortized, the book value of the bond liability is reduced, and this reduction is offset by a decrease in the interest expense recorded.
Therefore, the correct answer is:
d. decrease in interest expense.

With the Effective Interest Method of Amortization, the Amortization of a Bond