Question

If bonds are issued initially at a discount and the effective-interest method of amortization is used, interest expense in the earlier years will be:

a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
c. the same as if the straight-line method were used.
d. less than if the straight-line method were used.

Answer 1

greater than if the straight-line method were used

Step-by-step explanation:

Using the straight line method, interest amount will be greater than that amount of expense in the earlier stage of life. The interest amount will become down as compared to the amount of expense in the latter stage computed by using straight line method. When the bond is issued at a discount price, there will be increment in interest expense over bond's life.