When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

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When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the effective interest rate by the bond's carrying value at the beginning of the given period. The effective interest rate takes into account any discounts or premiums on the bond, which affects the actual interest expense.

When the Effective Interest Rate Method of Amortization Is Used