Question

Under the effective interest method, interest expense:

A. always increases each period the bonds are outstanding.
B. always decreases each period the bonds are outstanding.
C. is the same annual amount as straight-line interest expense.
D. is the same total amount as straight-line interest expense over the term of the bonds.

Answer 1

Under the effective interest method, interest expense is always the same total amount as straight-line interest expense over the term of the bonds.

Step-by-step explanation:

Under the effective interest method, interest expense is always the same total amount as straight-line interest expense over the term of the bonds. This means that the interest expense does not change each period the bonds are outstanding. Instead, it is calculated based on the effective interest rate and the carrying value of the bonds.