Chapter 5- Effective Interest Method

Discount on ______, ________, and ______ shal be amortized using effective interest method.
- bonds payable
- premium on bonds payable
- bond issue cost
What is an effective rate?

An effective rate is the rate that exactly discounts estimated cash future payments through the expected life of the bonds payable or when appropriate, a shorter period to the net carrying amount of the bonds payable.
When effective rate < nominal rate, there is a ________

premium
When effective rate > nominal rate, there is a __________.

discount
How do you solve for the interest paid?

Face value x nominal rate x time
How do you solve for the interest expense?

carrying amount xeffective rate x time
How do you solve for the discount or premium amortization?
- Premium: int. paid - int. expenses
- Discount: int. expenses- int. paid

Author

omnomleslie

188845

Card Set

Chapter 5- Effective Interest Method

Description

Financial Accounting

Updated

2012-12-12T00:10:51Z

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