If a bond discount is amortized using the effective interest method, the total amount of interest recognized over the life of the bond is the same as if the straight-line method is used.

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Quizplus · Accepted Answer

This statement is true. The effective interest method takes into account the changing book value of the bond over time, resulting in a higher interest expense in the early years and a lower expense in the later years. However, the total amount of interest recognized over the life of the bond is the same as if the straight-line method (which recognizes equal interest expense over each period) were used. This is true regardless of whether the bond has a fixed or variable interest rate.

If a Bond Discount Is Amortized Using the Effective Interest