Unformatted text preview: constant amounts of amortization and interest expense per period but a varying percentage rate. Companies follow three steps under the effectiveinterest method: 1. Compute the multiplying the c the beginning of effectiveinterest 2. Compute the bond interest paid (or accrued) by multiplying by the contractual interest rate. 3. Compute the amortization amount by determining the diffe computed in steps (1) and (2). Illustration 10B1 depicts these steps. Computation of amortization using effectiveinterest method Both the straightline and effectiveinterest methods of amortization result in the same total amount of interest expense over the term of the bonds. Furthermore, interest expense each interest period is generally comparable in amount. However, when the amounts are materially different , generally accepted accounting principles (GAAP) require use of the effectiveinterest method....
View
Full Document
 Spring '11
 
 Amortization, Depreciation, Matching Principle, Expense, Generally Accepted Accounting Principles

Click to edit the document details