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Accrual and Measurement of Interest Payments: James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank. James will receive 5% interest
Accrual and Measurement of Interest Payments: James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank. James will receive 5% interest in year 1; 5.5% in year 2; 6% in year three; and 6.5% in year 4. If James redeems this certificate before maturity date, he would receive a cumulative 4.5% annual rate of interest of 4.5%. The Bank has ascertained that less than one percent of its deposits redeem their certificates before the maturity date. The bank asks its accountant how to accrue and measure such interest payment obligations
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