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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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When a company exchanges a long-term, non-interest-bearing note for cash and no interest rate is stated, how does it determine the effective interest?

To determine

Explain the manner in which the company ascertains its effective interest rate, if it exchanges a long-term, non-interest-bearing note for cash and if no interest rate is stated.

Explanation

Effective interest rate:

Effective interest rate is the “fixed rate” applied to ending book value of the bonds to compute the interest expense and the amortization of bond discount or premium.

  • If the company exchanges a long-term, “non-interest bear...

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