Question

On January 1, 2017, $2,910,000, 10-year, 10% bonds, were issued for $2,823,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

Answer 1

To find the monthly amortization amount of the bond discount using the straight-line method, subtract the issue price from the face value to get the total discount and divide it by the number of months in the bond term. The monthly amortization amount for the given bonds is $725.

Step-by-step explanation:

The question at hand is focused on the concept of amortization of bond discount using the straight-line method. This method involves spreading out the discount on bonds payable equally over the life of the bond. In this case, the bonds were issued at a discount since their issue price ($2,823,000) is less than the face value ($2,910,000). To find the monthly amortization amount, we calculate the total discount by subtracting the issue price from the face value and then divide by the number of months over the bond's term.

The calculation would be as follows:

• Total bond discount: $2,910,000 - $2,823,000 = $87,000
• Term of the bond: 10 years or 120 months
• Monthly amortization amount: $87,000 / 120 months = $725 per month

Therefore, using the straight-line method, the monthly amortization amount would be $725.