Determining Interest Effective Interest Method (Effective rate multiplied by the outstanding balance of the debt)
{"Image DocumentName": "Determining InterestEffective Interest Method (Effective rate multiplied by the outstanding balance of the debt)", "Image ImageDescription": "926,395 \u00d7 6%  926,395 +  5,584.  55,584 -  50,000. Let\u2019s look at the calculation of the effective interest on this bond. We know that the cash interest is  50,000. The effective interest is determined by taking the carrying amount of the bond  926,395 and multiplying it by the market rate of interest, 6%. Remember we\u2019re dealing with semiannual interest so that 12% annual rate is divided by two to arrive at our 6% rate. We subtract the cash interest from the effective interest to determine the  5,584 increase in the carrying value of the bonds. Finally, we add the increase in the carrying value of the bonds to the previous carrying value to arrive at our new carrying value of  931,979. We continue this process as long as the bonds are outstanding.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}