Under the effective-interest method of amortization,interest expense each period can be calculated by multiplying the
A)beginning net liability times the effective interest rate for the appropriate time period.
B)beginning net liability times the coupon interest rate for the appropriate time period.
C)face value of the bonds times the effective interest rate for the appropriate time period.
D)face value of the bonds times the coupon interest rate for the appropriate time period.
E)liquidation value times the effective interest rate for the appropriate time period.

Question

Quizplus · Accepted Answer

The effective-interest method of amortization calculates interest expense each period as a portion of the beginning net liability (carrying value) multiplied by the effective interest rate. This method results in a constant interest expense over the life of the bond, unlike the straight-line method which results in a declining interest expense each period. Therefore, option A is the correct answer. The other options multiply the face value or coupon interest rate, which are not used in the effective-interest method of amortization.

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