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omnomleslie
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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

