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

Question

Quizplus · Accepted Answer

The effective-interest method of amortization uses the carrying value of the bonds and the effective-interest rate to calculate interest expense each period. This method results in a constant interest expense each period, even though the bond's carrying value and remaining balance changes over time. Therefore, choice A, which multiplies the carrying value of the bonds times the effective-interest rate for the appropriate time period, is the correct answer.

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