[Asja]

Can someone please explain to be about effective amortization vs straight-line amortization for bond invesment premium and discount? I saw multiple choice questions that used both methods and the answers are calculated differently (usually asking what the amortized cost of the bond on the balance sheet is)

“The strongest of all warriors are these two — Time and Patience.” ― Leo Tolstoy (War and Peace)

[Recked]

The straight line will always be the state/face value interest rate. The effective rate will amortize the premium or discount.
The difference between the stated and effective is your amortization factor.
For these types of questions I would suggest doing the chart, long hand, similar to how they show you in your course.
Sometimes the answer can be clear as its the only logical choice, but more often than not there will be 2 possible answers, one arrived at by doing the calculation the wrong way, and one arrived at by doing it correctly. It always helped me to write it out.

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

[Author]

Replies