Multiple Choice
On January 2, 2010, Laura Co.issued 8% bonds with a face amount of $1, 000, 000 maturing on January 2, 2020.The bonds were issued to yield 12%, resulting in a discount.Laura incorrectly used the straight-line method instead of the effective interest method to amortize the discount.How is the carrying amount of the bonds affected by this error as of December 31, 2011?
A) overstated
B) understated
C) no effect
D) cannot be determined with information provided
Correct Answer:
Verified
Correct Answer:
Verified
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