Two Methods of Amortization of a Discount or Premium Are

question 37

Essay

Two methods of amortization of a discount or premium are used by businesses. These two methods are the effective interest method and the straight-line method.
Required:
a.Explain how premiums and discounts are amortized using the straight-line and effective interest methods.
b.State which of the two methods is preferred and explain why.
c.Explain why many companies are able to use the method that is not considered GAAP.

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Definitions:

European Development

The process of economic, social, and political change and growth in European countries, often involving integration, innovation, and the handling of challenges such as migration and regional disparities.

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A birth control policy formerly implemented by China, aimed at controlling the population by limiting families to having only one child.

Spiralling Population

A scenario where a population grows rapidly due to a combination of high birth rates and lower mortality rates, often resulting in increased stress on resources and infrastructure.

Out-migration

The movement of people from a certain area or country to another, leading to a decrease in the population of the origin place.