How is the carrying value of the bonds affected by error

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Reference no: EM13864886

On January 1, 2005, Crowe Company issued $1,000,000 of bonds with a face rate of 6 percent that are due to mature January 1, 2011. The market rate of interest was 10 percent at the date of issuance, which resulted in a discount of $100,000. Crowe incorrectly used the straight-line method of amortization for the bond discount instead of the effective interest method. How is the carrying value of the bonds affected by the error?

At 12/31/2005 At 12/31/2010

a. Overstated Understated

b. Understated Overstated

c. Overstated No effect

d. Understated No effect

Reference no: EM13864886

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