Final answer:
The amortization of discount on bonds B) increases the amount of the investment account. This process adjusts the bond's book value upwards to reach its face value by maturity. A rise in market interest rates decreases the market value of existing bonds.
Step-by-step explanation:
The question is related to the amortization of the discount on bonds held as a long-term investment. When a bond is purchased at a discount, this means that the purchase price is less than the face value of the bond.
Over the life of the bond, the discount is amortized, which has a direct effect on the investment account and the amount of interest expense recognized.
The correct answer to the question, "The amortization of discount on bonds purchased as a long-term investment..." is (B) increases the amount of the investment account.
This is because the amortization of the discount is the process by which the bond's book value is adjusted upwards to reach the face value of the bond by maturity, effectively increasing the carrying value of the investment.
As it pertains to interest rates, a rise in market interest rates after a bond's issuance would result in the market value of the bond decreasing since the bond's fixed interest payments are less attractive compared to newer bonds issued at the higher prevailing rates.