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How does amortization of premium affect the amount of interest expense?
Madeline35
Charges made against the interest received on a debt in order to offset a premium paid for the debt. Thus, with each periodic payment, a debtor is not only paying back interest, but also part of his or her premium. This leads to higher periodic payments than in the case when only interest is paid out. However, a payment schedule which includes premium amortization makes debt management easier, especially if the principal is large. While paying just the interest each period will lead to a low outflow of cash each month, the debtor might not save enough to pay the principal. Thus, amortizing the premium each period also reduces the credit risk of the debt, since the creditor gets some part of the principal each time period, as opposed to allowing a debtor to forfeit on all of it at the maturity of the loan. Amortization of premium is a common feature in cases when a person or company takes on a large amount of debt at one time, such as a mortgage.
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How does prepaid expense and accrued expense affect the profit of a business?
it will either increase or decrease profit. Prepaid expense should increase profit as the amount has been overstated.
What causes the profit for the year not to equal the net cash inflow?
You have several components that would cause changes in Cash flow and Net income. The first, and usually most intrusive is the way that capital asset (machines, buildings, etc.) are recorded. Purchasing a machine worth $50,000 causes an instant outflow of cash, however, you are able to amortize that same machine over it's useful life on the balance sheet. This means that if the machine has a useful life of 10 years, the amortization expense in the same year your purchased the machine (which remember was a $50,000 outflow of cash) will only be $5,000 (assuming straight-line amortization). This gives you a difference of $4,500 for the year. In subsequent years, the amortization expense will still be present at $5,000 (which counts towards your Net Income), however you did not have any cash transaction associated with the asset. This causes a $5,000 affect in the opposite direction.
Does depreciation expense increase cash?
Depreciation expense has no affect on cash flows whatsoever. It is simply a method of systematically expensing a long-term tangible asset over its useful life. However, if you are trying to calculate your cash flows from operating activities using the indirect method, depreciation expense is one of the figures you would add to your net income in order to arrive at that number.
What is the normal balance of depreciation expense accounts?
The answer to this question depends on the value of the depreciable assets the company has, the useful lives of the assets, and the depreciation methods used. When a firm owns many depreciable assets, depreciation expense will be higher. The longer the useful lives of the assets, the less the depreciation expense will be per period because the expense is being allocated over a longer period of time. The depreciation method also has a huge impact. If the straight-line method is used, then the expense will be constant each period. If another method such as double-declining balance is used, higher depreciation will occur during the beginning of the life of the asset. All of these factors affect the balance of the depreciation expense account.
Is Depreciation on plant and machinery asset or liability?
surely it is neither, it is merely just a reduction in marketable value and no money is paid or received with depreciation. it does not affect cash but is classed as an expense.
How does amortization of the principal balance affect the amount of interest expense recorded each succeeding year?
reduces the amount of interest expense each succeeding year
Is accrued expense a financial liability?
If you are doing adjusting entries, an accrued expense will affect a balance sheet account (payable) and an income statement account (expense). Such as accrued interest at the end of year would be: Interest Expense (Debit) Interest Payable (Credit)
When bonds are issued at a premium what is the affect on interest?
Bonds issued at a premium offer an interest rate that is above the market interest rate. Typically, a bond issuer offers a premium interest rate to offset higher risk associated with a bond offering that has a low credit rating. A purchaser of a bond offered at a premium will receive a higher interest rate but will incur a higher degree of credit risk.
What is the purpose of an interest only mortgage calculator?
The purpose is to help determine the amortization schedule would be for an interest only mortgage. It also helps determine how principal payments made to reduce the mortgage balance will affect the schedule.
How does an auto loan amortization calculator help me choose the best auto loan for me?
Although a loan amortization is most commonly used for home mortgages it can also be used for auto loans. It uses basic information about the cost of the car, the interest rate, and the loan term. It is important to keep in mind that the interest rates change from lender to lender and that it can affect the total price of the car, the monthly payment, and the amount needed for a down payment.
If I get a traffic violations does it affect someones insurance?
It can affect: 1. Your insurance premium (for your own vehicle, or your parents vehicle if you are on their policy. 2. Your employers insurance premium (if you drive for work) It will NOT affect: 1. Your friend's premium, unless you are scheduled as a driver on the policy
How interest rate affect the sa economy?
how interest rates affect the sa economy
How does prepaid expense and accrued expense affect the profit of a business?
it will either increase or decrease profit. Prepaid expense should increase profit as the amount has been overstated.
What causes the profit for the year not to equal the net cash inflow?
You have several components that would cause changes in Cash flow and Net income. The first, and usually most intrusive is the way that capital asset (machines, buildings, etc.) are recorded. Purchasing a machine worth $50,000 causes an instant outflow of cash, however, you are able to amortize that same machine over it's useful life on the balance sheet. This means that if the machine has a useful life of 10 years, the amortization expense in the same year your purchased the machine (which remember was a $50,000 outflow of cash) will only be $5,000 (assuming straight-line amortization). This gives you a difference of $4,500 for the year. In subsequent years, the amortization expense will still be present at $5,000 (which counts towards your Net Income), however you did not have any cash transaction associated with the asset. This causes a $5,000 affect in the opposite direction.
Why interest rate has no affect on the aggregate demand?
The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.
Compound Interest and Your Return?
Compound Interest and Your Return How interest is calculated can greatly affect your savings. The more often interest is compounded, or added to your account, the more you earn. This calculator demonstrates how compounding can affect your savings, and how interest on your interest really adds up!
How do interest rates affect people's purchasing decisions?
High interest rates increase the cost on the ability to buy a house or a car.
