How will the effective interest rate method of amortization affect the interest expense incurred on a bond issued at a discount?
A) Interest expense will decrease as the carrying value of the bond increases.
B) Interest expense will increase as the carrying value of the bond decreases.
C) Interest expense will decrease as the carrying value of the bond decreases.
D) Interest expense will increase as the carrying value of the bond increases.

Question

Quizplus · Accepted Answer

The effective interest rate method results in interest expense increasing as the carrying value of the bond increases because interest expense is calculated based on the carrying value and the market interest rate. As the bond amortizes, the carrying value increases, leading to higher interest expense.

How Will the Effective Interest Rate Method of Amortization Affect