Effective interest rate method - Amortization of premium
I have some difficulties to understand the answer of one of the practice problem of the reading relating to Non-current liabilities.
The question is the 12: “For a bond issued at a premium, using the effective interest rate method, the:
A ) carrying amount increases each year.
B ) amortization of the premium increases each year.
C ) premium is evenly amortized over the life of the bond. »
the answer A is definitely wrong because the carrying value should decrease every year since the bond was issued at a premium
the answer C refers to a straight line amortization
The answer B is the correct answer according to the book but in my opinion it is wrong too because since the carrying value decreases every year, the interest expense (effective interest rate x carrying value) should decrease every year too and the premium amortization which is the difference between this interest expense and the interest paid (which is fixed) should therefore decrease every year too?
Could someone explain me why I am wrong or what I missed?
Thanks in advance!
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