When the straight-line method of amortization is used for a bond discount,the amount of interest expense for an interest period is calculated by
A) adding the amount of discount amortization for the period to the amount of cash paid for interest during the period.
B) deducting the amount of discount amortization for the period from the amount of cash paid for interest during the period.
C) multiplying the carrying value of the bonds by the effective interest rate.
D) multiplying the face value of the bonds by the face interest rate.

Question

Quizplus · Accepted Answer

The straight-line method of amortization evenly spreads the bond discount over the life of the bond. Therefore, the amount of discount amortization for each period would be the total discount divided by the number of periods. To calculate the interest expense for the period, this amount of discount amortization is added to the amount of cash paid for interest during the period, as the bond issuer is still responsible for paying the full face interest rate to bondholders. Therefore, choice A is the correct answer.

When the Straight-Line Method of Amortization Is Used for a Bond