On January 1, 2012, Smith and Associates issued bonds with a face value of $1,000,000, a stated

Question:

On January 1, 2012, Smith and Associates issued bonds with a of $1,000,000, a stated rate of interest of 9 percent, and a 20-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 11 percent at the time the bonds were issued.

Required
Write a brief memo explaining whether the effective interest rate method or the straight-line method will produce the highest amount of interest expense recognized on the 2012 income statement.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...