Use the present value and future value tables included in Appendix 8 and on the textbook companion website.
-When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Question

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Quizplus · Accepted Answer

When interest expense is calculated using the effective-interest amortization method, interest expense equals the carrying value of the bond multiplied by the effective-interest rate. This is because the effective-interest amortization method takes into account the changing carrying value of the bond as interest is accrued and paid. Option A is incorrect because the actual amount of interest paid may be different than the interest expense calculated using the effective-interest amortization method. Option B is incorrect because the stated interest rate is used to calculate the cash paid for interest, but not the amount of interest expense recognized on the income statement. Option D is incorrect because the maturity value of the bonds is not relevant to the calculation of interest expense.

Use the Present Value and Future Value Tables Included in Appendix