When the effective interest method of amortization is used for a bond premium,the amount of premium to be amortized for a period is calculated by subtracting the amount of bond interest expense for the period from the amount of cash to be paid for interest for the same period.

Question

Quizplus · Accepted Answer

This is correct. The effective interest method of amortization calculates the amount of premium to be amortized each period by subtracting the amount of bond interest expense for the period from the amount of cash paid for interest. This helps to evenly spread the premium over the life of the bond.

When the Effective Interest Method of Amortization Is Used for a Bond