Control interest dates and note patterns

Three instruments can share one effective-interest principle while presenting different cash patterns.

Between interest dates

At a September 30 reporting date between June 30 and December 31 coupon dates, separate interest attributable to July through September from the debt's unamortized basis. Coupon payable and effective-interest amortization share a time interval, but they are not one account. If issuance occurs between coupon dates, identify whether the cash closing amount includes interest earned before the issuer's own borrowing period.

Zero-coupon debt

A zero-coupon note has no periodic coupon cash. It still has interest expense: opening carrying amount multiplied by the effective periodic yield. The entire expense increases carrying amount until the maturity value is due. Calling the instrument “zero interest” would erase the financing economics.

Installment note

For a level-payment note, cash is constant but its composition changes. Compute interest on opening carrying amount; the residual cash reduces principal. A schedule that divides principal equally is a different contract unless the terms say so.

One method, three controls

For each pattern, preserve:

• the exact dates and period fraction;
• contractual cash versus effective interest;
• principal or carrying-basis movement; and
• the final contractual tie.

Do not extend the calculation to a note exchanged for property until the measurement basis and supplied value conclusion are established.

Exit check

Given one between-date bond, one zero-coupon note, and one installment note, mark which periods have coupon cash, principal cash, interest expense, payable cutoff, and carrying-amount movement. Explain why “cash paid” cannot be the interest-expense formula for all three.