Which of the following statements is true regarding the straight-line method of amortizing discounts and premiums on bonds?
A)It assigns variable amounts of interest over the term of the liability.
B)It uses compound interest principles.
C)It assigns the same amount of interest to each interest period over the life of the bond.
D)It accurately reports the amount of interest expense incurred during each interest period.

Question

Quizplus · Accepted Answer

The straight-line method amortizes the discount equally over the life of the bond.While the straight-line method is easy to understand,it is inaccurate because it does not show the correct amount of interest expense incurred during each accounting period.This straight-line recognition pattern is irrational because the amount of interest expense recognized should increase as the carrying value of the bond liability increases.A more accurate recognition pattern can be accomplished by using an approach called the effective interest rate method.

Which of the Following Statements Is True Regarding the Straight-Line