Chapter 5- Effective Interest Method

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Author:
omnomleslie
ID:
188845
Filename:
Chapter 5- Effective Interest Method
Updated:
2012-12-11 19:10:51
Tags:
AC506
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Description:
Financial Accounting
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  1. Discount on ______, ________, and ______ shal be amortized using effective interest method.
    • bonds payable
    • premium on bonds payable
    • bond issue cost
  2. 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.
  3. When effective rate < nominal rate, there is a ________
    premium
  4. When effective rate > nominal rate, there is a __________.
    discount
  5. How do you solve for the interest paid?
    Face value x nominal rate x time
  6. How do you solve for the interest expense?
    carrying amount xeffective rate x time
  7. How do you solve for the discount or premium amortization?
    • Premium: int. paid - int. expenses
    • Discount: int. expenses- int. paid

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