Which of the following is true with regard to amortizing a bond premium or discount?
| A. The straight-line method recognizes the same amount of interest expense each period, but less total interest expense than the effective-interest method. |
| B. The straight-line method recognizes the same amount of interest expense each period, but more total interest expense than the effective-interest method. |
| C. The straight-line method recognizes the same amount of interest expense each period and the same total interest expense as the effective-interest method. |
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D. None of these answers are correct. How do you determine the amount of Bond Interest EXPENSE each period, using the effective-interest method?
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When preparing a bond amortization table, the carrying value of a bond is determined by taking
| A. The issue price (determined using the market rate) plus any amortized premium or less any amortized discount. |
| B. The issue price (determined using the market rate) plus any amortized discount or less any amortized premium. |
| C. The face (maturity) value plus any amortized premium or less any amortized discount. |
| D. The face (maturity) value plus any amortized discount or less any amortized premium. |
Solution 1:
The straight-line method recognizes the same amount of interest expense each period and the same total interest expense as the effective-interest method. This is true statement with regard to amortizing a bond premium or discount.
Hence option "C" is correct.
Solution 2:
Bond Interest expense using Effective Interest method is determined by Multiply the carrying value of the bond by the market rate, adjusted for the number of compounding periods.
Hence option "D" is correct.
Solution 3:
When preparing a bond amortization table, the carrying value of a bond is determined by taking issue price (determined using the market rate) plus any amortized discount or less any amortized premium.
Hence option "B" is correct.
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