Question

Relative to a given bond issue, using either the straight-line method or the effective-interest method of amortization will result in Select one: a. the same amount of interest expense being recognized each year. b. the same carrying value each year during the life of the bonds. c. the same amount of interest expense being recognized over the life of the bonds. d. more interest expense being recognized than if premium or discounts were not amortized.

Answer 1

Answer:

c. the same amount of interest expense being recognized over the life of the bonds

Explanation:

The interest expense will be the cash outlay plus discount on bond payable or cash outlay less premium on bonds payable.

If the method total interest expense are different then company's will always chose one over the other to decrease their income taxes

Also, accounting should represent reality thus, the method to recognize interest should give the same result at the end of their life.

Answer 2

Answer:

c) the same amount of interest expense being recognized over the life of the bonds.

Explanation:

The straight line method of amortization divides the bond premium or discount over the total life of the bond, resulting in equal interest payments every year.

The effective interest method of amortization assigns different amounts of interest during each period (annually or semi-annually).

Both methods charge the same total interest during the life of the bond, the advantage of the effective interest method is that it is more realistic since the interest expense always equals the market rate. But at the end, the same amount of interest expense will be recognized.