Interest expense increases each period if a company uses the effective-interest method of amortization and the bonds are issued at a discount.

Question

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When a company uses the effective-interest method of amortization, the interest expense increases each period as a result of the discount on the bond being gradually recorded as interest expense over the life of the bond. This is because the effective-interest method results in a higher interest expense in the earlier periods of the bond's life, as the discount is amortized to interest expense over a shorter period of time.

Interest Expense Increases Each Period If a Company Uses the Effective-Interest