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 effective rate.
B) The interest expense is calculated as the carrying value × the effective rate.
C) The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium.
D) The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

Question

Quizplus · Accepted Answer

Under the effective interest method, interest expense is calculated as the carrying value of the bond multiplied by the effective interest rate. The cash interest paid is the stated interest rate multiplied by the face value of the bond. The difference between the cash interest paid and the interest expense is either added to or deducted from the carrying value of the bond depending on whether the bond was issued at a premium or at a discount. Therefore, statements A, C, and D are not correct.

Which of the Following Statements About Bond Accounting Under the Effective