Fall 2013_Acc 3100_Ch 14

14 13 premiumanddiscountamortizationcompared 14 14

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Unformatted text preview: um and Discount Amortization Compared 14-14 Debt Issue Costs Legal Legal Accounting Accounting Underwriting Underwriting Commission Commission Engraving Engraving Printing Printing Registration Registration Promotion 14-15 U. S. GAAP vs. IFRS Debt issue costs (called transaction costs under IFRS) are accounted for differently by U.S. GAAP and IFRS. • Debt issue costs are recorded separately as an asset. • Amortized over the term to maturity. “Transaction costs” reduce the recorded amount of the debt. The cost of these services reduces the net cash the issuing company receives and the amount recorded for the debt. Unless the recorded amount of the debt is reduced by the transaction costs, the higher effective interest rate is not reflected in a higher recorded interest expense. 14-16 Long­Term Notes On January 1, 2013, Skill Graphics, Inc., a product labeling and graphics firm, borrowed $700,000 cash from First BancCorp and issued a 3-year, $700,000 promissory note. Interest of...
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