Which is the preferred method to use when amortizing a bond discount or premium?
A)Effective-interest method of amortization
B)Market-interest rate method of amortization
C)Straight-line method of amortization
D)Both straight-line and market-interest rate methods of amortization are equally preferable

Question

Quizplus · Accepted Answer

The effective-interest method of amortization is the preferred method for amortizing a bond discount or premium. It results in a more accurate and consistent allocation of interest expense over the life of the bond, as it takes into account the changing carrying value of the bond and the market interest rate at each interest payment date. The straight-line method may be easier to calculate, but it does not accurately reflect the changing interest expense and is therefore less preferable. The market-interest rate method is not a commonly used method of amortization.

Which Is the Preferred Method to Use When Amortizing a Bond