Which of the following statements is true when bonds are issued at a premium?
A)The carrying value decreases by equal amounts each year if straight-line amortization is used.
B)The carrying value decreases by equal amounts each year if effective interest amortization is used.
C)The carrying value decreases by larger and larger amounts each year if effective interest amortization is used.
D)The carrying value decreases by equal amounts each year if straight-line amortization is used and decreases by increasing amounts each year if effective interest amortization is used.

Question

Quizplus · Accepted Answer

Straight-line amortization of a bond premium decreases the premium by equal amounts each year.As the remaining premium balance decreases,so does the carrying value of the bond.If effective interest amortization is used,the interest expense is smaller each year,so the premium decreases by larger and larger amounts each year.

Which of the Following Statements Is True When Bonds Are