The carrying value,using the effective interest method,would increase each year:
A)The carrying value of bonds will never increase.
B)If the bonds were sold at either a discount or a premium.
C)If the bonds were sold at a premium.
D)If the bonds were sold at a discount.

Question

Quizplus · Accepted Answer

The effective interest method results in a higher interest expense in the earlier years of the bond's life, which causes the carrying value to increase each year, provided that the bond is sold at a discount. If the bond is sold at a premium, the carrying value will decrease each year. If the bond is sold at face value, the carrying value will remain the same.

The Carrying Value,using the Effective Interest Method,would Increase Each Year