1. Chapter 15 Long-Term Liabilities
Prepared by:
Debbie Musil
Kwantlen University College

2. Appendix 15A: Effective-Interest Amortization
Three steps to calculate amortization:
1. Calculate bond interest paid
2. Calculate interest expense
3. Amortization amount is difference
Bond Interest Paid
Bond Interest Expense ÷ =
Amortization Amount
Face Value of Bonds
Contractual Interest Rate
Carrying Value of Bonds at Beginning of Period
Market Interest Rate x x

3. Amortizing Bond Discount
For the first interest period:
1. Calculate bond interest paid
= $1,000,000 x 5% x 6/12 = $25,000
2. Calculate interest expense
= $957,345 x 6% x 6/12 = $28,720
3. Determine amortization amount
= $25,000 - $28,720 = $3,720
Subsequent periods are calculated in a similar manner
Carrying value of bond increases for each period based on amortization of discount

4. Amortizing Bond Premium
For the first interest period:
1. Calculate bond interest paid
= $1,000,000 x 5% x 6/12 = $25,000
2. Calculate interest expense
= $1,044,915 x 4% x 6/12 = $20,898
3. Determine amortization amount
= $25,000 - $20,898 = $4,102
Subsequent periods are calculated in a similar manner
Carrying value of bond decreases for each period based on amortization of premium

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