Question

Which of the following is correct about the effective-interest method of amortization? Group of answer choices:...

Which of the following is correct about the effective-interest method of amortization?

Group of answer choices:

It must be used to amortize a discount or premium under US GAAP.

The amount of amortization of a discount decreases from period to period.

The amount of amortization of a premium decreases from period to period.

The effective-interest method applied to investments in debt securities is different from that applied to bonds payable.

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Answer #1

The Answer is It must be used to amortize a discount or premium under US GAAP.

Explanation:

1) Under US GAAP, Effective-interest method of amortization will be used to amortized the discount or premium over the period of bonds rather than using straight line method.

2) Option 2,3 are not correct because amount of amortization of a premium or discount will increases from period to period.

3) Option 4 are not correct because effective-interest method applied to investments in debt securities is not different from that applied to bonds payable. So, Same method will be used under both categories.

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