ACCT 2004 Ch 14 Question Set #1 1. What is the difference between the stated interest rate and the market interest rate? How is each one used in the calculation of the present value of a bond? 2. When does a discount occur on the issuance of debt? When does a premium occur on the issuance of debt? What type of account/balance does a discount have? a premium? Do you add or subtract a discount from the Bonds Payable account? What about a premium? 3. What is the difference in the "straight-line" method of amortizing discounts & premiums vs. the "effective interest" method? 4. What does "calling" a bond mean? Do you pay the face value or some other amount (generally)? 5. How does compound interest differ from simple interest? What type of interest do banks normally charge (or pay)