University:
Alabama State University
Course:
ACC101 | Accounting
Academic year:

2024
Views:

456

Pages:

1
Author:

Charlie M.

INVESTMENT IN FAAC CHARACTERISTICS - Business Model - Collecting Contractual Cash Flow - Principal - Interest Non-current Asset Subsequent Measurement: Amortized Cost - Carrying Amount Beginning less Premium Amortization - Carrying Amount Beginning add Discount Amortization AMORTIZATION = Interest Collection vs. Interest Income NOTE! - If Effective Interest Rate is greater than Nominal Interest Rate, then there is a Discount. - If Effective Interest Rate is lesser than Nominal Interest Rate, then there is a Premium. Example: AMORTIZATION TABLE | DATE | Interest Collection | Interest Income | Amortization | Present Value | |-------------|---------------------|-----------------|--------------|---------------| | 01/01/2024 | 24,000 | 26,078 | 2,078 | 186,324 | | 12/31/2024 | 24,000 | 26,369 | 2,369 | 188,352 | | 12/31/2025 | 24,000 | 26,701 | 2,701 | 190,721 | | 12/31/2026 | 24,000 | 27,089 | 3,089 | 193,421 | | 12/31/2027 | 24,000 | 27,510 | 3,510 | 196,500 | | | | | | 200,000 | - Face Value of Note x Nominal Rate - Present Value x Effective Interest Rate - Difference between Interest Collection and Interest Income - Present Value of Note - Previous Present Value of Note - Add Amortization, If Note is trading at DISCOUNT - Subtract Amortization, If Note is trading at PREMIUM If Interest Income is greater than the Interest Collection, then the Note is trading at a discount.