On March 1, 2006, Clark Co. issued bonds at a discount. Clark incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How were the following amounts, as of December 31, 2006, affected by the error?

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Bond carrying amount

Retained earnings

a.

Overstated

Overstated

b.

Understated

Understated

c.

Overstated

Understated

d.

Understated

Overstated