On January 1, 2013, the Simmons Companies issued bonds with a face value of $1,000,000, 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 2013 income statement.