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.

Question

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The Answer of 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.

Two Methods of Amortization of a Discount or Premium Are