A company uses the effective interest method to amortize a bond premium.Which of the following statements is true regarding the carrying value of the bond?
A)The carrying value will decrease by equal amounts each year.
B)The carrying value will decrease by smaller amounts each year.
C)The carrying value will decrease by larger amounts each year.
D)The carrying value will be lower than the face value of the bond until maturity.

Question

Quizplus · Accepted Answer

When the effective interest method is used to amortize a bond premium,the amount of interest expense recognized decreases each year as the carrying value of the bond liability decreases.Because interest expense is smaller each year,the amortization of the bond premium increases each year,the carrying value of the bond decreases by larger and larger amounts each year.

A Company Uses the Effective Interest Method to Amortize a Bond