A bond discount must
A) always be amortized using straight-line amortization.
B) always be amortized using the effective-interest method.
C) be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.
D) be amortized using the straight-line method if it yields annual amounts that are materially different than the effective-interest method.

Question

Quizplus · Accepted Answer

Generally, bond discounts should be amortized using the effective-interest method, as it results in a more accurate effect on interest expense over the life of the bond. However, if the difference between the amount of interest recognized using the effective-interest method and the straight-line method is not material, then the straight-line method may be used. If the difference is material, the effective-interest method must be used. Therefore, the best choice is C, as the effective-interest method must be used if it yields annual amounts that are materially different than the straight-line method.

A Bond Discount Must