Part I The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method under IFRS PE GAAP allows either the effective interest rate or the straight line method Part II Gains or losses from the early extinguishment of debt that is refunded can theoret...

Part I a The effective interest method of amortization of bond discount or premium applies a constant interest rate to the carrying value of debt The straightline method applies a constant dollar amou ...

Part I The appropriate method of amortizing a premium or discount on issuance of bonds is the

Question:

Part I
The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method under IFRS. PE allows either the effective interest rate or the straight-line method.
Part II Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways:
1. They can be amortized over the remaining life of old debt.
2. They can be amortized over the life of the new debt issue.
3. They can be recognized in the period of extinguishment.
Instructions
(a) What is the effective interest method of amortization and what are the differences and similarities between it and the straight-line method of amortization?
(b) How is interest calculated using the effective interest method? Why and how do amounts that are obtained using the effective interest method differ from amounts that are calculated under the straight-line method?
Instructions
Part II
(a) Provide supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt.
(b) Which of the above methods is generally accepted as the appropriate amount of gain or loss that should be shown in a company’s financial statements? GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...