Prem amortization face value discprem balance book

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Unformatted text preview: f $420.97 [from part (b)]. Under the straight­line method, the company will recognize interest expense during 2012 of $412.64 [from part (c)]. Thus, the straight­line method results in lower expenses and higher net income in the early periods of a note issued at a premium. e. Over the life of a note or bond, both the effective­interest and straight­line methods will amortize the entire discount or premium balance. Consequently, over the life of a note or bond, both methods will amortize exactly the same amount of discount or premium. As noted in part (d), for notes issued at a premium, the straight­line method will recognize lower interest expense than the effective­interest method in the early years of the note's life. The lower interest expense recognized under the straight­line method will eventually have to be offset if both methods are to recognize the same amount of interest expense over the life of the note. Consequently, the straight­line method will have to recognize “relatively” higher interest expense and, hence, lower net income in the later years of a note issued at a premium. P11–9 a. Note A 1/1/12 Present value (i = 6%, n = 3) PV of face value ($1,000 .8396) ($1,000 .8900) PV of interest payment ($100 2.6730) ($100 1.8334) Total present value present value 12/31/13 Present value (i = 6%, n = 1) PV of face value ($1,000 .9434) PV of interest payment ($100 .9434) Total present value Note B 1/1/12 Present value (i = 10%, n = 3) PV of face value ($1,000 .75132) ($1,000 .82645) PV of interest payment ($100 2.48685) ($100 1.73554) Total present value present value 12/31/13 Present value (i = 10%, n = 1) PV of face value ($1,000 .90909) PV of interest payment ($100 .90909) Total present value $ $ 12/31/12 Present value (i = 6%, n = 2) PV of face value 839.60 890.00 PV of interest payment 267.30 183.34 1,106.90 1,073.34 $ 943.40 $ 94.34 1,037.74 $ $ $ $ 12/31/12 Present value (i = 10%, n = 2) PV of face value 751.32 826.45 PV of interest payment 248.69 173.55 1,000.00 1,000.00 $ 909.10 $ 90.91 1,000.00 $ $ Total Total P11–9 Continued Note C 1/1/12 Present value (i = 10%, n = 3) PV of...
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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