Using the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to the
A) stated rate multiplied by the face value of the bonds.
B) market rate multiplied by the beginning-of-period carrying value of the bonds.
C) stated rate multiplied by the beginning-of-period carrying value of the bonds.
D) market rate multiplied by the face value of the bonds.

Question

Quizplus · Accepted Answer

The effective-interest method of bond discount or premium amortization calculates interest expense each period by multiplying the market rate by the beginning-of-period carrying value of the bonds. This results in a changing interest expense as the carrying value of the bonds changes over time due to amortization of the discount or premium. Therefore, the correct option is B, where the market rate is multiplied by the beginning-of-period carrying value of the bonds to calculate the periodic interest expense.

Using the Effective-Interest Method of Bond Discount or Premium Amortization