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How is the effective interest rate calculated

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Question - Under IFRS, we take out the bond issuance costs so the carrying amount is now 9,500,000, and the effective interest rate is determined to be 6.193% [$9,500,000 cash inflow on January 1, 2010; $500,000 cash outflow on December 31, 2010 - 2014; and $10,000,000 cash outflow on December 31, 2014].

Interest expense in 2010 is $588,335 [$9,500,000 x 6.193%]. Interest expense in 2011 is $593,806 [($9,500,000 + ($588,335 - $500,000)) x 6.193%]. The total reduction in retained earnings as of December 31, 2011 would be $1,182,141.

In 2011, IFRS income would be $6,194 [$600,000 - $593,806] larger than 05, GAAP income, Stockholders" equity at December 31, 2011 is $12,859 [$1,200,000 - $1,182,141] larger under IFRS than US. GAAP,

How is the effective interest rate calculated?

Reference no: EM132062809

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