On January 1, 2011, $937,000, 5-year, 10% bonds, were issued for $908,890. Inter

Question

On January 1, 2011, $937,000, 5-year, 10% bonds, were issued for $908,890. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, what is the semiannual amortization amount?

Select the correct answer.

$2,811

$28,110

$46,850

$5,622

A corporation issues $82,000, 8%, 5-year bonds on January 1, 2011, for $85,690. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, determine the amount of bond interest expense to be recognized on July 1, 2011.

Select the correct answer.

$2,911

$3,649

$3,280

$6,560

Explanation / Answer

1)

 

Hmmm
937,000 - 908,890 = 28110
28110 divided by 10 (5 years twice a year)
= 2811

 

2)

 

 A corporation issues $82,000, 8%, 5-year bonds on January 1, 2007, for $85,690. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, determine the amount of bond interest expense to be recognized on July 1, 2007.

The amortization of the bond premium each semi annual period is ($85,690 - $82,000) / 5 / 2 = $369
The amount of interest paid each semi annual period is $82,000 X 8% / 2 = $3,280
The amount of the interest expense recognized is $3,280 - $369 = $2,911

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