Asked by: Lanie Gulkevichasked in category: General Last Updated: 9th March, 2020
How do you amortize discounts?
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Moreover, how do you amortize?
To calculate amortization, start by dividing the loan's interest rate by 12 to find the monthly interest rate. Then, multiply the monthly interest rate by the principal amount to find the first month's interest. Next, subtract the first month's interest from the monthly payment to find the principal payment amount.
Similarly, what does it mean to amortize a discount? With regards to bonds payable, the term amortize means to systematically allocate the discount on bonds payable, the premium on bonds payable, and the bond issue costs to Interest Expense over the remaining life of the bonds. (Bonds are likely to mature in 10 years or more.)
Accordingly, how do you amortize bond premium or discount?
First, calculate the bond premium by subtracting the face value of the bond from what you paid for it. Then, figure out how many months are left before the bond matures and divide the bond premium by the number of months remaining. That tells you how much to amortize on a monthly basis.
Is bond discount a contra account?
Since a debit balance in a liability account is contrary to the normal credit balance, the account is referred to as a contra liability account. The most common contra liability accounts are Discount on Bonds Payable, Bond Issue Costs, Debt Issue Costs, and Discount on Notes Payable.