0
What is the theory behind requiring bond issuers to charge bond discounts to interest expense when the discount is amortized?
When a bond matures the issuer has to pay the investor the full face value of the bond. The bond will also have a stated interest rate. If an investor will only accept a rate of interest which is higher than the stated interest rate, the issuer will likely sell the bond for less than the present value of the face value of the bond.
For example, If a $100,000 bond is issued with a $4,000 discount to meet the buyers desired return, the issuer will have to pay the investor the $96,000 ($100,000-$96,000) the issuer received plus the $4,000 discount upon maturity.
Since the issuer has to pay out that $4,000, upon maturity, to secure $96,000 the $4,000 discount is recognized by the issuer as interest expense (over the life of the bond).
What else can I help you with?
When an interest-bearing note matures the balance in the Notes Payable account is?
The principal or maturity value. The premium or discount should be fully amortized down to zero.
When an interest-bearing note matures what is the balance in the notes payable account?
The principal or maturity value. The premium or discount should be fully amortized down to zero.
Why are discounts allowed listed as a finance expense of the business?
a supplier offers a discount for prompt payment. this is considered financing the customer the "discount amount" for the additional days of the net due date when the customer does not take the early pay discount. so when the customer pays the full amount on the net due date, the amount above the discount amount is considered interest revenue. it is treated as such on the financial statements. Even discount allowed is when the seller of goods or services grants a payment discount to a buyer. When the seller allows a discount, this is recorded as a reduction of revenues, and is typically a debit to a contra revenue account.
What is the difference between dividends and interest expense?
Interest Expense is usually calculated by (Carrying Value of Liability*Yield Rate * Time). Carrying Value is the actual present value of the liability (including discounts earned, etc) Interest Expense is the money that actually goes out of the firm. Interest Paid is calculated by (Face Value of Liability*Interest Rate * Time). Interest Paid is the fair-value of dues from the firm, but is not the actual value of the liability. Interest Expense is the amount reflected in the books of the firm, and is usually higher than Interest Paid. This is because Interest Expense often includes the cost of discount amortization(this is necessary when the bond/other liability was gained at a discount. The amortization is worked into the formula above, and hence gives an amount higher than interest paid. This gives the total interest expensed by the Company.) Hope this helps. Cheers
Is the straight-line amortization or effective interest rate method better?
This method is preferred over the straight-line method of amortizing bond discount or bond premium. Amortization of a bond discount or premium is the difference between the interest expense and the nominal interest payment. The amortization entry is: Interest Expense (effective interest rate x carrying value) Cash (nominal interest rate x face value) Bond Discount (for the difference)
Any premium or discount on a long-term debt investment is amortized?
Yes, at the end of the year you take the difference between the interest revenue gained and what would have been gained if the investment had the present value interest. For a discount, the difference will be credited against the discount received.
When an interest-bearing note matures the balance in the Notes Payable account is?
The principal or maturity value. The premium or discount should be fully amortized down to zero.
When an interest-bearing note matures what is the balance in the notes payable account?
The principal or maturity value. The premium or discount should be fully amortized down to zero.
What is the definition of an amortized loan?
An amortized loan is just a basic loan where the principal and interest are paid on a monthly basis. Usually, the majority of the interest is paid first, then the principal.
What are the key differences between an amortized loan and an interest-only loan?
The key difference between an amortized loan and an interest-only loan is how the payments are structured. In an amortized loan, each payment covers both the interest and a portion of the principal, gradually reducing the balance over time. In an interest-only loan, the borrower only pays the interest each month, with the full principal amount due at the end of the loan term.
What are the differences between an interest-only loan and an amortized loan?
An interest-only loan requires only interest payments for a certain period, with the principal paid later. An amortized loan requires both interest and principal payments throughout the loan term, gradually reducing the balance.
When repaying an amortized loan the interest payments increase over time?
true
What are the differences between fixed-rate and adjustable-rate amortized loans?
Fixed-rate amortized loans have a constant interest rate and monthly payment throughout the loan term, providing predictability and stability. Adjustable-rate amortized loans have interest rates that can change periodically, leading to fluctuating monthly payments based on market conditions.
Are car loans amortized in a similar way to mortgages?
Yes, car loans are amortized in a similar way to mortgages, where the borrower makes regular payments that include both principal and interest until the loan is fully paid off.
Can you provide an example of an amortized loan?
An example of an amortized loan is a mortgage. In a mortgage, the borrower makes regular payments that include both principal and interest over a set period of time until the loan is fully paid off.
What is the difference between mortgages and amortized loans?
The main difference between mortgages and amortized loans is that a mortgage is a type of loan specifically used to buy real estate, while an amortized loan is a loan where the principal amount is paid off gradually over time through regular payments that include both principal and interest.
Is Target hiring and do they give employee discounts?
Target have positions listed on their website, and it is possible to view details of each position, and to register an interest. Target do give their employees a special discount card for their stores.
