Assume that a bond is issued with the following characteristics:Date of bonds: J

Question

Assume that a bond is issued with the following characteristics:Date of bonds: January 1, 2005; maturity date: January 1, 2010; face value: $200,000; face interest rate: 10 percent paid semiannually (5 percent per period); market interest rate: 8 percent (4 percent per semiannual period); issue price: $216,222; bond premium is amortized using the effective interest method of amortization. What is the amount of bond premium amortization for the June 30, 2005, adjusting entry?

$1,351

$2,702

$8,649

$10,000

$1,351

$2,702

$8,649

$10,000

Explanation / Answer

Calculate bond premium amortization for the june 30,2005

Bonds interest paid = (200000*5%) = 10000

Bonds interest expenses= (216222*4%) = 8649

Bonds premium amortization = (10000-8649) = $1351

so answer is a) $1351

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