With the effective interest method of amortization, the amortization of a bond discount results in a(n):
A) increase in stockholders' equity.
B) decrease in liabilities.
C) increase in interest expense.
D) decrease in interest expense.

Question

Quizplus · Accepted Answer

The effective interest method of amortization results in an increase in interest expense as the bond discount is gradually allocated to each period's interest expense. Choice A and B are not correct as the amortization does not affect stockholders' equity or liabilities outside of the bond's carrying value. Choice D is also incorrect as the effective interest method actually results in a higher total interest expense over the life of the bond.

With the Effective Interest Method of Amortization, the Amortization of a Bond