Which is the most theoretically correct method to use when amortizing a bond discount or premium?
A)market-interest rate method of amortization
B)straight-line method of amortization
C)effective-interest method of amortization
D)Both straight-line and market-interest rate methods of amortization are equally preferred.

Question

Quizplus · Accepted Answer

The effective-interest method of amortization is the most theoretically correct method to use when amortizing a bond discount or premium. This method takes into account the effective interest rate of the bond, which includes both the stated interest rate and the discount or premium. It results in a more accurate allocation of interest expense and the amortization of the bond discount or premium over the life of the bond. The straight-line method does not take into account the time value of money, while the market-interest rate method only considers the market interest rate at the time the bond was issued, which may not reflect the actual effective interest rate over the life of the bond.

Which Is the Most Theoretically Correct Method to Use When