Asked by: Lanie Gulkevich
asked in category: General Last Updated: 9th March, 2020

How do you amortize discounts?

Under effective interest method of 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.

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