Question

On january 1, 2017, $5,000,000, 10-year, 8% bonds were issued at $5,150,000. interest is paid each january 1 and july 1. the straight-line method of amortization is used to amortize the premium. how much is the semiannual amortization?

Answer 1

The bonds were issued at $5,150,000 with a face value of $5,000,000, so the premium is $150,000. These are ten year bonds, so that amortization period is 10 years. The annual amortization of the premium is 15,000. The semiannual amortization is $7,500.