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Delicious77 [7]
3 years ago
7

The effective interest amortization method: Multiple Choice Allocates bond interest expense over the bond's life using a changin

g interest rate. Allocates bond interest expense over the bond's life using a constant interest rate. Allocates a decreasing amount of interest over the life of a discounted bond. Allocates bond interest expense using the current market rate for each interest period. Is not allowed by the FASB.
Business
1 answer:
Alex_Xolod [135]3 years ago
5 0

Answer:

The correct option is B,allocates bond interest expense over the bond's life using a constant interest rate.

Explanation:

Assuming a bond was issued for $20,000,000 with stated interest rate(coupon interest rate) of 5% and yield to maturity of 7%,in calculating the bond interest expense,we simply apply the  yield to maturity of 7% to the bond outstanding balance in each year.

From the above, it is clear that the percentage applied to bond outstanding balance over relevant years remains the same,hence option B is absolutely correct

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