# ASC 835-30-55: Interest — Imputation of Interest — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/835/30/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:72cb202ad064a54cefb9a8384fc833ffb328c82ac9051c6d501e800e197d4eef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-30-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/835/30/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [835-30-55-1](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:c71c0e93e786a85d2dcb558aec25a41a3d6fed8d37ccd5057296541e47df85c8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the following paragraphs is not subject to the scope limitation in paragraph [835-30-15-3(b)](https://asc.understandingaccounting.org/asc/835/30/#835-30-15-3). ##### [835-30-55-2](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:ba8bce015f46ff567a556826ffc7d972c7f5bc4c10146854ca5fcf67be6f48a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Generally accepted accounting principles (GAAP) require use of the [interest method](https://asc.understandingaccounting.org/glossary/i/#interest-method "The method used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period."). There is no basis for using an alternative to the interest method except if the results of alternative methods do not differ materially from those obtained by using the interest method. Therefore, methods other than the interest method, such as the rule of 78s, sum of the years' digits, and straight-line methods shall not be used if their results materially differ from the interest method. ##### [835-30-55-3](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:34772db067ab8a33f235a43c6ae01ac7ac7fe3b5e47a45f884e9eb33e9f44d4d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The interest method produces periodic interest income at a constant effective yield on a loan; therefore, in a lending arrangement in which interest collected in earlier periods will be greater than that computed using the interest method, the excess interest collected shall be deferred and recognized as interest income in later periods so as to produce a constant yield. For example, the interest method would be applied in this way to loans for which interest is collected by the sum of the years' digits method. #### Illustrations ##### [835-30-55-4](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:a0f95e4ed7c2c3d456418a313eba998fd71b200206ae19497fa139e9b8171c1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [835-30-05-2](https://asc.understandingaccounting.org/asc/835/30/#835-30-05-2), [835-30-25-3 through 25-4](https://asc.understandingaccounting.org/asc/835/30/#835-30-25-3) , and [835-30-25-10 through 25-11](https://asc.understandingaccounting.org/asc/835/30/#835-30-25-10) that the coupon or stated rate of interest and the face amount of a note or bond may not be the appropriate bases for valuation. The presumption that market values provide the evidence for valuation must be overcome before using coupon or stated rates and face or maturity amounts as the bases for accounting. ##### [835-30-55-5](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:48d24853320edb35d64a7f9b9ce06ba041c898215ccdf43d1a39a669029b94ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon issuance of a note or bond, the issuer customarily records as a liability the face or principal amount of the obligation. Ordinarily, the recorded liability also represents the amount that is to be repaid upon maturity of the obligation. The value recorded in the liability account, however, may be different from the proceeds received or the present value of the obligation at issuance if the market rate of interest differs from the coupon rate of interest. For example, consider the issuance of a $1,000, 20-year bond that bears interest at 10% annually. If we assume that 10% is an appropriate market rate of interest for such a bond, the proceeds at issuance will be $1,000. The bond payable would be recorded at $1,000, which represents the amount repayable at maturity and also the present value at issuance, which is equal to the proceeds. However, under similar circumstances, if the prevailing market rate were more (less) than 10%, a 20-year 10% bond with a face amount of $1,000 would usually have a value at issuance and provide cash proceeds of less (more) than $1,000. The significant point is that, upon issuance, a bond is valued at the present value of the future coupon interest payments plus the present value of the future principal payments (face amount). These two sets of future cash payments are discounted at the prevailing market rate of interest (for an equivalent security) at the date of issuance of the debt. As the 8% and 12% columns show, [premium](https://asc.understandingaccounting.org/glossary/p/#premium "The excess of the net proceeds, after expense, received upon issuance of debt over the amount repayable at its maturity. See Discount.") or [discount](https://asc.understandingaccounting.org/glossary/d/#discount "The difference between the net proceeds, after expense, received upon issuance of debt and the amount repayable at its maturity. See Premium.") arises when the prevailing market rate of interest differs from the coupon rate. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-82698238-A6C1-4FC9-B0D3-370198D1E2BA-low.gif) Assume prevailing market rate of 10% 8% 12% "1. Present value of annual interest payments of $100 (the coupon rate of 10% of $1,000) for 20 years" $851 $982 $747 "2. Present value of payment of the face amount of $1,000 at the end of Year 20" 149 215 104 Present value and proceeds at date of issuance " $1,000 " " $1,197 " $851 ##### [835-30-55-6](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:16c388f568dbf4f8ec3b11e728c05227d367d7a7178e59b9334d6f8170b97c88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the case of a $1,000 non-interest-bearing 20-year note, where the prevailing market rate for comparable credit risks is 10%, the following valuation should be made. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AD0B7E2B-E536-4DE8-9E5C-B8B1485373E5-low.gif) 1\. Present value of no annual interest payments $- "2. Present value of payment of the face amount of $1,000 at the end of Year 20" 149 Present value and proceeds at date of issuance $149 ##### [835-30-55-7](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:4c5a051a1391d9847ca98e1b82e79fbb8a02abcb0cdbd4d3b35b4cc36c808b0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Comparison of the two tables shows the significant impact of interest. ##### [835-30-55-8](https://asc.understandingaccounting.org/asc/835/30/#835-30-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:57.466Z to 2026-09-10T01:49:57.466Z Record version: sha256:66467164ac39f1e2982a763252fdf7a268a7ecfb7efd1cdb22af95112e5f71f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example is an illustration of the guidance in paragraphs [835-30-45-1 through 45-3](https://asc.understandingaccounting.org/asc/835/30/#835-30-45-1) related to the balance sheet presentation of notes that are discounted. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-FAC497EC-C732-4090-812F-C44F78344B2D-low.gif) December 31 20X2 20X1 Presentation 1—Discount presented in caption NOTE RECEIVABLE FROM SALE OF PROPERTY: " $1,000,000 face amount, noninterest bearing, due December 31, 20X9 (less unamortized discount based on imputed interest rate of 8%—20X2, $320,000; 20X1, $370,000)" " $680,000 " " $630,000 " Presentation 2—Discount presented separately NOTE RECEIVABLE FROM SALE OF PROPERTY: "Noninterest bearing note due December 31, 20X9" " $1,000,000 " " $1,000,000 " Less unamortized discount based on imputed interest rate of 8% " 320,000 " " 370,000 " Note receivable less unamortized discount " $680,000 " " $630,000 " Presentation 3—Several notes involved LONG-TERM DEBT (Note 1): Principal amount " $24,200,000 " " $24,200,000 " Less unamortized discount and debt issuance costs " 2,680,000 " " 2,792,000 " Long-term debt less unamortized discount and debt issuance costs " $21,520,000 " " $21,408,000 " Note 1—Long-Term Debt "Long-term debt at December 31, 20X2, consisted of the following:" Principal Unamortized Discount and Debt Issuance Costs "6% subordinated debentures, due 20X9 (discount is based on imputed interest rate of 7%)" " $20,000,000 " " $2,150,000 " "6 1/2% bank loan, due 20X7" " 3,000,000 " " 120,000 " "Noninterest bearing note issued in connection with acquisition of property, due 20X9 (discount is based on imputed interest rate of 8%) " " 1,200,000 " " 410,000 " Total " $24,200,000 " " $2,680,000 "