Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a discount,how will this component change under the effective interest method as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Question

Quizplus · Accepted Answer

Under the effective interest method, interest expense is calculated by multiplying the carrying value of the bond (face value minus the discount) by the effective interest rate. As the bond approaches maturity, its carrying value will increase towards its face value. Therefore, the interest expense will also increase.

Interest Expense Is Computed Annually When a Bond Is Issued