The effective interest method of amortizing bonds allocates the same amount of expense to each period true false
The effective interest method of amortizing bonds allocates the same amount of expense to each period
true
false
In an accounting practice, the effective interest method is used to discount a bond. If the bonds are sold for discount then this method is used. The amount of the bond discount is amortized to the interest expense over the bond's life. As the bond's book value increases, the amount of interest expense increases also increases. This method is commonly used in relation with the bond market. The effective interest rate calculation provides the real interest rate returned in a given period, based on the actual book value of the bond at the beginning of the period. If the book value of the investment declines, then the interest earned will also decline.
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