The interest rate at which an acquired company issued its long-term bonds payable is higher than the current market rate. The bonds have a four-year remaining life at the date of acquisition. Which statement is true concerning the write-off of revaluation of these bonds in the fourth year after acquisition (eliminating entry O)?

Question

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Interest expense will decrease because the revaluation of the bonds to reflect the higher market interest rate would have initially resulted in recognizing a liability at a value higher than its face value. Over the bond's remaining life, this adjustment is amortized, leading to a reduction in interest expense over time.

The Interest Rate at Which an Acquired Company Issued Its