Sanders Corporation purchased a $1 million 10-year debenture for $1.2 million on

Question

Sanders Corporation purchased a $1 million 10-year debenture for $1.2 million on January 1, 2010. In 2017, how much amortization of bond premium must Sanders report on its 2017 income tax return from purchase of this bond? A. $20,000 B. $0 C. $200,000 D. $240,000 Sanders Corporation purchased a $1 million 10-year debenture for $1.2 million on January 1, 2010. In 2017, how much amortization of bond premium must Sanders report on its 2017 income tax return from purchase of this bond? A. $20,000 B. $0 C. $200,000 D. $240,000

Explanation / Answer

Bond premium that Sanders must report on its 2017 income tax return from the purchase of this bond is:

200,000/10 = 20,000 as the bond was issued for 10 years and total bond premium is $200,000.

So answer is A.

Year Particulars L.F Debit ($) Credit ($) 2010 Jan-01 Cash 1,200,000 Unamortized Bond Premium 200,000 Bond payable 1,000,000 (for bond issued for 10 years)

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