Question

1. What is the effective yield method of calculating interest expense and what is the formula?

Answer 1

ANS:

Actually Many companies maintain. the historical cost of bonds after issunce and if any discount or premium on such issue amartized over the life of the bonds, other companies report the bonds at their current fair value.

This discount is amortized over time, ultimately leading to an increase in the carrying amount to the bond's face value. Under the

effective interest rate method,

Interest expense = Bond carrying amount × Market rate in effect when the bonds are issued  

answered by: anonymous