The effective interest amortization method:
A) Allocates bond interest expense over the bond's life using a constant interest rate.
B) Allocates bond interest expense over the bond's life using a changing interest rate.
C) Allocates bond interest expense using the current market rate for each interest period.
D) Allocates a decreasing amount of interest over the life of a discounted bond.
E) Is not allowed by the FASB.

Question

Quizplus · Accepted Answer

The effective interest amortization method allocates bond interest expense over the bond's life using a constant interest rate. This method results in a constant periodic interest expense and a decreasing portion of interest expense and an increasing portion of the principal being paid off each period.

The Effective Interest Amortization Method