This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1916 Excerpt: ...practice is, of course, just as misleading as the same method of handling a discount would be, for it will result in an erroneous statement of the operating costs. 243. Effective Rate Method The best modern practice of handling either bond premium or discount is that known as the effective rate method, this effective ...
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This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1916 Excerpt: ...practice is, of course, just as misleading as the same method of handling a discount would be, for it will result in an erroneous statement of the operating costs. 243. Effective Rate Method The best modern practice of handling either bond premium or discount is that known as the effective rate method, this effective rate being figured on the amount actually received for the bond, and not on its par. Under this method the effective rate which the issue bears is charged against Income as the Accrued Interest account is set up. In the case of discount, the effective rate is debited to the Interest account and the nominal rate credited to Accrued Interest, while the difference between the nominal and effective rates is credited to Bond Discount and Expense. In the case of premium, the difference between the effective and nominal rates is debited to the Premium account. To illustrate the handling of premium or discount accounts on the books under the effective rate method, let us assume that the $1,000,000 issue of the Lenox Iron Works which sold at 90 flat, and the expenses of which were $5,000, runs for twenty years and bears interest at the rate of 5% per annum, payable annually. The total of the Discount and Expense account shows $105,000 that must be written off over the life of the bonds. Instead of the nominal rate of 5%, or $50,000, which the issue carries, the true or effective rate would be 6.139% or $55,250. At the end of the first year, if monthly entries are not made, the entries recording this would be: Interest on Bonds $50,000 To Accrued Interest $50,000 Interest accrued on the issue of $1,000,000 first mortgage 5% bonds. Interest on Bonds $5.25 To Bond Discount and Expense $5,250 Difference between the nominal and true effective rates on...
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PLEASE NOTE, WE DO NOT SHIP TO DENMARK. New Book. Shipped from UK in 4 to 14 days. Established seller since 2000. Please note we cannot offer an expedited shipping service from the UK.
