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How does the effective interest rate method for amortizing bond discounts or premiums differ from the straight - line method? The effective interest rate method
How does the effective interest rate method for amortizing bond discounts or premiums differ from the straightline method?
The effective interest rate method is only applicable to bonds issued at a premium, while the straightline method is only applicable to bonds issued at a discount. The effective interest rate method results in lower total interest expense over the bond's term compared to the straightline method.
The effective interest rate method results in equal periodic interest expense, while the straightline method results in decreasing periodic interest expense.The effective interest rate method recognizes interest expense based on the market interest rate at issuance, while the straightline method recognizes interest expense evenly over the bond's term.
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