Which of the following statements does not correctly describe the accounting for bonds that were issued at a discount?
A) The interest expense over the life of the bond exceeds the cash interest payments.
B) The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
C)The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used.
D)The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is useD.When bonds are issued at a discount, their book value increases over time and eventually reach the bonds' maturity value. Interest expense increases because the book value increases. The amortization of discount on bonds payable is the difference between the increasing interest expense and the constant cash interest payment.

Question

Quizplus · Accepted Answer

The amortization of the discount on bonds payable account actually increases as the bonds mature when the effective interest method is used. This is because the difference between the increasing interest expense and the constant cash interest payment (i.e., the amortization of the discount) is spread out over a shorter remaining life of the bond. Therefore, statement C does not correctly describe the accounting for bonds that were issued at a discount.

Which of the Following Statements Does Not Correctly Describe the Accounting