What happens to bond accounting under the effective interest method?

Question

Quizplus · Accepted Answer

Bond accounting under the effective interest method involves calculating interest expense as the carrying value of the bond multiplied by the yield rate. This method takes into account the changing carrying value of the bond as the interest rate changes throughout its life, thereby providing a more accurate representation of the true cost of borrowing. Option A is incorrect because it only calculates the cash interest paid at the bond's face value. Option C is incorrect because the difference between the cash interest paid and the interest expense is not directly added to the carrying value of bonds sold at a premium. Option D is incorrect because the difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount.

What Happens to Bond Accounting Under the Effective Interest Method