Which statement is true? The carrying amount of the bonds will decrease each year if the bonds were issued at a premium. Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used. Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used. The carrying amount of the bonds will decrease each year if the bonds were issued at a discount.

Which statement is true? The carrying amount of the bonds will decrease each year if the bonds were issued at a premium. Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used. Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used. The carrying amount of the bonds will decrease each year if the bonds were issued at a discount.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 5MC

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Which statement is correct when the effective-interest method is used to amortize bond premium or discount? Group of answer choices The interest expense increases each period if the bonds were issued at a premium. The carrying amount at the end of the first year would be highest if the bonds were issued at a discount. The periodic amortization will increase regardless of whether the bonds were issued at either a discount or a premium. The periodic amortization will increase or decrease depending on whether the bonds were issued at a premium or at a discount.
When bonds are sold at a discount, If the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of discount is: A. Higher than the effective interest amount every year. B. Higher than the effective interest amount in the early years and less than the effective interest amount in the later years C. Less than the effective interest amount in the early years and more than the effective Interest amount in the later years. D. Less than the effective interest amount every year.
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