Question

On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. 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, the semiannual amortization amount is

Answer 1

$4,000

Step-by-step explanation:

Par value of bonds = $2,000,000

Issue price of bonds = $1,960,000

Discount on bonds payable = Par value of bonds - Issue price of bonds

= 2,000,000 - 1,960,000

= $40,000

Semiannual amortization of Discount on bonds payable = Discount on bonds payable/10

= 40,000/10

= $4,000