When the straight-line method of amortization is used for a bond premium,the amount of interest expense for an interest period is calculated by
A)adding the amount of premium amortization for the period to the amount of cash paid for interest during the period.
B)deducting the amount of premium amortization for the period from the amount of cash paid for interest during the period.
C)multiplying the carrying value of the bonds by the effective interest rate.
D)multiplying the face value of the bonds by the face interest rate.

Question

Quizplus · Accepted Answer

Under the straight-line method of amortization, the amount of premium amortization for an interest period remains constant throughout the life of the bond. This amount is deducted from the face interest rate to calculate the effective interest rate for the period. The interest expense is then calculated by deducting the premium amortization from the cash paid for interest during the period. Therefore, the correct choice is B.

When the Straight-Line Method of Amortization Is Used for a Bond