The result of using the effective interest method of amortization for bond discounts is that the
A)interest expense for each amortization period is constant.
B)effective interest rate for each amortization period is constant.
C)amount of interest expense decreases each period.
D)cash interest payment is greater than the interest expense.

Question

Quizplus · Accepted Answer

The effective interest method of amortization allocates interest expense over each period based on the carrying value of the bond and the effective interest rate. As the carrying value of the bond decreases, the amount of interest expense decreases each period. However, the effective interest rate remains constant throughout the life of the bond. Therefore, choice B is the correct answer.

The Result of Using the Effective Interest Method of Amortization