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NEW QUESTION: 1
If bonds are initially sold at a discount and the effective-interest method of amortization is used:
A. Interest expense will be less than the cash interest payment each period.
B. Interest expense in the earlier periods will be greater than interest expense in the later periods.
C. Interest expense will equal the cash interest payment each period.
D. Interest expense in the earlier periods will be less than interest expense in the later periods.
Answer: D
Explanation:
Interest expense equals the carrying amount of the liability at the beginning of the period times the effective interest rate. The carrying amount of the liability equals the face amount of the bond minus the discount. As the discount is amortized over the life of the bond, the carrying amount increases, Consequently, the interest expense increases over the term of the bond.


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