Question

On january 1 904,005 year 10% bonds were issued for 876,880 interest is paid semi annually on january 1 and july 1 if the issuing corporation use as a straight line method to itemize a discount on the bonds payable the semi annual atomization amount is _________.

Answer 1

The semi-annual amortization amount on a bond issued at a discount using the straight-line method is calculated by dividing the total bond discount by the number of semi-annual periods over the life of the bond.

Step-by-step explanation:

When bonds are issued at a discount, the issuing corporation will amortize the discount over the life of the bonds. The semi-annual amortization amount is calculated using the straight-line method, which spreads the discount evenly over the number of payment periods.For example, if on January 1, 904,005 10% bonds were issued for 876,880, the discount on the bonds is the difference between the face value (904,005) and the issued price (876,880), which is 27,125. Interest is paid semi-annually on January 1 and July 1, meaning there are two interest payment periods each year.

To determine the semi-annual amortization amount, divide the total discount by the number of periods over the life of the bond. Assuming the bond has a term of 10 years, there will be 20 periods (10 years * 2 periods per year). Therefore, the semi-annual amortization amount is 27,125 / 20, which equals 1,356.25.