Either the straight-line method or the effective-interest method of amortization will always result in
A) the same amount of interest expense being recognized over the term of the bonds.
B) the same amount of interest expense being recognized each year.
C) more interest expense being recognized than if premium or discounts were not amortized.
D) the same carrying value each year during the term of the bonds.

Question

Quizplus · Accepted Answer

Both the straight-line method and effective-interest method result in the same total amount of interest expense being recognized over the term of the bonds, regardless of whether there is a premium or discount. Therefore, choice A is the correct answer. Choice B is incorrect because the amount of interest expense recognized each year varies under the effective-interest method. Choice C is incorrect because amortization of premiums or discounts actually results in less interest expense being recognized over the term of the bonds. Choice D is incorrect because the carrying value will decrease each year under both methods, reflecting the amortization of the premium or discount.

Either the Straight-Line Method or the Effective-Interest Method of Amortization