When bonds are issued at a discount, the
A) applicable interest rate used to calculate interest expense is the prevailing market interest rate on the date of each interest payment date.
B) amortized cost of the bonds will decrease each period.
C) interest expense will not be a constant dollar amount over the life of the bond.
D) interest paid to bondholders will be a function of the effective interest rate on the date the bonds are issued.

Question

Quizplus · Accepted Answer

When bonds are issued at a discount, the interest expense recognized in the financial statements increases over the life of the bond because the discount on the bond (which is the difference between its face value and the amount it was issued for) is amortized over the life of the bond. This results in a non-constant interest expense each period.

When Bonds Are Issued at a Discount, the