##### Asked by: Lanie Gulkevich

asked in category: General Last Updated: 9th March, 2020# How do you amortize discounts?

**amortization**of bond

**discount**, the bond

**discount amortized**each year is equal to the difference between the interest expense based on the product of market interest rate and the carrying amount of the bond and the interest payable based on the product of the stated coupon rate and

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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.