amortizing a premium or discount on issuance of bonds
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The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method.
Generally, the effective interest method is defended on the grounds that it provides the appropriate amount of interest expense. Does it also provide an appropriate balance sheet amount for the liability balance? Why or why not?
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This is a tricky question! When reporting a bond, you report both the face amount, the amount you must repay at maturity, and the premium or discount amount to get to the net bond ...
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