Which of the following statements does not correctly describe the accounting for bonds that were issued at a discount?
A)The interest expense over the life of the bond exceeds the total cash interest payments.
B)The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
C)The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used.
D)The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is used.

Question

Quizplus · Accepted Answer

The amortization of the discount on bonds payable account increases as the bonds mature when the effective interest method is used, not decreases. This is because the effective interest method of amortization uses a constant interest rate to allocate interest expense over the life of the bond, and as the bond approaches maturity, the unamortized discount becomes smaller, resulting in a smaller amount of interest expense to be allocated.

Which of the Following Statements Does Not Correctly Describe the Accounting