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Summary When the effective-interest method is used to amortize bond premium or discount, the pe

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When the effectiveWhen the effective-interest method is used to amortize bond premium or discount, the periodic amortization will Select one: a. Increase if the bonds were issued at a premium. b. Increase if the bonds were issued at a discount. c. Increase if the bonds were issued at either a discount or a premium. d. Decrease if the bonds were issued at a premium.Answer & ExplanationThe correct answer is: b. Increase if the bonds were issued at a discount.Explanation:When using the effective-interest method to amortize bond premium or discount, the periodic amortization amount changes over time based on the carrying amount of the bond and the market interest rate.1.Bonds Issued at a Discount:oWhen bonds are issued at a discount, their carrying amount starts below their face value.oThe interest expense each period is calculated as a percentage (the market rate) of this carrying amount.oAs you amortize

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When the effective-interest method is used to amortize bond premium or

discount, the periodic amortization will Select one: a. Increase if the bonds were

issued at a premium. b. Increase if the bonds were issued at a discount. c.

Increase if the bonds were issued at either a discount or a premium. d. Decrease

if the bonds were issued at a premium.




Answer & Explanation


The correct answer is: b. Increase if the bonds were issued at a discount.


Explanation:


When using the effective-interest method to amortize bond premium or

discount, the periodic amortization amount changes over time based on the

carrying amount of the bond and the market interest rate.


1. Bonds Issued at a Discount:


o When bonds are issued at a discount, their carrying amount starts

below their face value.

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  • when the effectiveïwhen the effective interest m
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  • the periodic amortization amount changes over tim
  • their carrying amount starts below their face val

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