Question

When the effective-interest method of bond discount amortization is used,

A. the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date.
B. the carrying value of the bonds will decrease each period.
C. interest expense will not be a constant dollar amount over the life of the bond.
D. interest paid to bondholders will be a function of the effective-interest rate on the date the bonds are issued.

Answer 1

Answer: C. interest expense will not be a constant dollar amount over the life of the bond.

Step-by-step explanation:

When a bond is sold at a discount, the discount will have to be amortized over the life of the bond to ensure that it reaches par at maturity.

As a result, the interest expense will be based on a larger figure every year which would mean that it would have to be larger each time. t will therefore not be a constant dollar amount over the life of the bond.