On January 1, 2018, the Christie Companies issued bonds with a face value of $500,000, a stated

Question:

On January 1, 2018, the Christie Companies issued bonds with a face value of $500,000, a stated rate of interest of 10 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 8 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 2018 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...