Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:
A)All of the income must be recognized in the year of maturity.
B)The OID will be included in gross income for the year of purchase.
C)The interest income for the first year will be less than the interest income for the third year.
D)The original issue discount must be amortized using the straight-line method.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

Under the OID rules, the interest income is recognized over the life of the instrument using the constant yield method, which results in increasing amounts of interest income each year.

Under the Original Issue Discount (OID) Rules as Applied to a Three-Year