When the effectiveWhen the effective-interest method is used to amortize bond premium or discount, the periodic amortization will Select one: a. Increase if the bonds were issued at a premium. b. Increase if the bonds were issued at a discount. c. Increase if the bonds were issued at either a...
When the effective-interest method is used to amortize bond premium or
discount, the periodic amortization will Select one: a. Increase if the bonds were
issued at a premium. b. Increase if the bonds were issued at a discount. c.
Increase if the bonds were issued at either a discount or a premium. d. Decrease
if the bonds were issued at a premium.
Answer & Explanation
The correct answer is: b. Increase if the bonds were issued at a discount.
Explanation:
When using the effective-interest method to amortize bond premium or
discount, the periodic amortization amount changes over time based on the
carrying amount of the bond and the market interest rate.
1. Bonds Issued at a Discount:
o When bonds are issued at a discount, their carrying amount starts
below their face value.
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