Which of the following statements regarding the effective-interest method of accounting for bonds is false?
A) GAAP usually requires use of the effective interest method.
B) The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective-interest method is used.
C) Over the life of the bonds the carrying value increases for discounted bonds when using the effective-interest method.
D) The effective-interest method applies a constant percentage to the bond carrying value to compute interest expense.

Question

Quizplus · Accepted Answer

The amount of periodic interest expense actually increases over the life of a discounted bond issue when using the effective-interest method, because the carrying value of the bond increases over time, and the constant interest rate is applied to an increasing carrying value.

Which of the Following Statements Regarding the Effective-Interest Method of Accounting