Question

Hi, please help to these questions and explain why?

7 Ch14/. Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense?

S26 Ch14/. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
c the same as if the straight-line method were used.
d. less than if the straight-line method were used.

Answer 1

False,

As amortization of a premium dose not increases bond interest expense and amortization of a discount does not decreases bond interest expense.

Journal Entries of Amortization of Premium and discounts are as follows:

Particular	Debit	Credit
Premium on Bonds Payable	XXXX
Interest Expense		XXXX
Amortisation of Premium: The amount is credited to interest expense, since it represents an decrease of the interest
Interest Expense	XXXX
Discount on bonds payable		XXXX
Amortization of Discounts: The amount is debited to interest expense, since it represents an increase of the interest

The amount is credited to interest expense, since it represents an decrease of the interest