If the straight-line method of amortization of bond premium or discount is used,

Question

If the straight-line method of amortization of bond premium or discount is used, which of the following statements Is true? Annual interest expense will increase over the life of the bonds with the amortization of bond discount. Annual interest expense will increase over the life of the bonds with the amortization of bond premium. Annual, interest expense will remain the same over the life of the bonds with the amortization of bond discount. Annual .Merest expense will decrease over the life of the bonds with the amortization of bond discount.

Explanation / Answer

Option (3).

The straight line method allocates a fixed amortized amount every year, and so the annual interest expense remains fixed (unlike the effective interest method where interest expense varies every year).

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