A company uses the effective interest method to amortize a bond discount.Which of the following statements is true regarding the interest expense that is recognized each year?
A)It will be greater than the interest payment.
B)It will increase from year to year.
C)It will remain the same from year to year.
D)It will be greater than the interest payment and it will also increase from year to year.

Question

Quizplus · Accepted Answer

Whenever a bond is issued at a discount,the interest expense recognized each year will be greater than the interest payment since the discount is an additional cost of borrowing.When the effective interest method is used,the interest expense increases from year to year as the carrying value of the bond liability increases.

A Company Uses the Effective Interest Method to Amortize a Bond