Using the effective-interest method of amortization,interest expense is calculated based on the:

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The effective-interest method calculates interest expense based on the market rate (i.e. the yield investors require based on current market conditions) multiplied by the carrying value of the bonds (i.e. the book value of the bonds on the company's balance sheet). This method ensures that interest expense is recognized based on the actual rate at which the company borrowed funds, rather than the stated rate (which may not reflect current market conditions). Choice (B) is incorrect because the market rate is not multiplied by the face value of the bonds. Choice (C) is incorrect because it uses the stated rate (i.e. the rate specified in the bond contract) instead of the market rate. Choice (D) is incorrect because it multiplies the stated rate by the face value, which does not reflect the actual interest expense incurred by the company.

Using the Effective-Interest Method of Amortization,interest Expense Is Calculated Based