Which of the following statements about bond accounting under the effective interest method is correct?
A) The cash interest paid is calculated as the bond face value ´ the market rate.
B) The interest expense is calculated as the carrying value ´ the market rate.
C) The difference between the cash interest paid and the interest expense is added to the carrying value of bonds sold at a premium.
D) The difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount.

Question

Quizplus · Accepted Answer

The effective interest method calculates the interest expense as a percentage of the carrying value of the bond, not the face value. Choice A is incorrect because it only calculates the cash interest paid, which is not the same as interest expense. Choice C is incorrect because the difference between cash interest paid and interest expense is used to adjust the carrying value of bonds sold at a discount, not a premium. Choice D is incorrect because the difference between interest expense and interest paid is used to adjust the carrying value of bonds sold at a premium, not a discount.

Which of the Following Statements About Bond Accounting Under the Effective