Answer:
False
Explanation:
Effective interest rate is calculated as the interest earned on the book value, by calculating interest earned on face value at the stated rate.
As for example, if stated rate = 5% and face value of bond = $100,000 and it costed $96,000 then,
Carrying value or book value = $96,000
Interest earned = $100,000 [tex]\times[/tex] 5% = $5,000
Effective interest rate = $5,000/$96,000 = 5.208%
Thus, bond interest expense is calculated on face value that is $100,000.
Therefore, the statement is
False
