If bonds were initially issued at a discount,the interest expense on the bonds calculated using the effective interest method will
A)decrease as the bonds approach their maturity date.
B)increase as the bonds approach their maturity date.
C)remain constant throughout the bonds' life.
D)fluctuate throughout the bonds' life.

Question

Quizplus · Accepted Answer

When bonds are issued at a discount, the effective interest rate will be higher than the stated interest rate. Therefore, the interest expense will be higher than the cash interest payment each period. As a result, as the bonds approach maturity and the discount on the bonds is being amortized over a shorter period, the interest expense calculated using the effective interest method will increase.

If Bonds Were Initially Issued at a Discount,the Interest Expense