Under the effective-interest method of amortization, interest expense each period can be
A) face value of the bonds times the stated interest rate for the appropriate time period
B) carrying value of the bonds times the effective-interest rate for the appropriate time period
C) face value of the bonds times the effective-interest rate for the appropriate time period
D) carrying value of the bonds times the stated interest rate for the appropriate time period

Question

Quizplus · Accepted Answer

Under the effective-interest method of amortization, interest expense each period is calculated as the carrying value of the bonds times the effective-interest rate for the period. This method reflects the interest expense based on the effective interest rate, rather than a fixed stated rate, and results in a more accurate representation of the true cost of borrowing over the life of the bonds.

Under the Effective-Interest Method of Amortization, Interest Expense Each Period