An amortized discount 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, the amortized discount increases over time as the bond approaches maturity. This is because the interest expense recorded each period is based on the carrying amount of the bond, which increases as the discount is amortized, leading to a larger interest expense and thus a larger amount of discount amortized each period.

An Amortized Discount Is Computed Annually When a Bond Is