Under the effective-interest method of amortization,the amount of discount amortized each interest period is equal to
A)the amount of interest expense plus the cash paid for interest.
B)the amount of interest expense less the cash paid for interest.
C)the total discount divided by the number of interest payments to be made.
D)the total amount of interest expense divided by the number of interest payments to be made.
E)the amount of the decrease from the cash payment.

Question

Quizplus · Accepted Answer

Under the effective-interest method of amortization, the amount of discount amortized each interest period is calculated by subtracting the cash paid for interest from the interest expense for the period. This is because the interest expense represents the cost of using the borrowed funds, while the cash paid for interest represents the actual cash outflow. The difference between the two is the amount of discount amortized.

Under the Effective-Interest Method of Amortization,the Amount of Discount Amortized