Question

On January​ 1, Year​ 1, assume Smart Touch Learning issued​ 10-year, $ 130000 bonds at 96​% with an interest rate of 6​% paid​ semi-annually. Using the​ straight-line amortization​ method, how much of the discount would be amortized each interest​ period?

Answer 1

In straight-line amortization, the discount on bonds payable is allocated evenly over the life of the bonds. The amount of discount amortized each interest period can be calculated by dividing the total discount by the number of interest periods.

Step-by-step explanation:

In straight-line amortization, the discount on bonds payable is allocated evenly over the life of the bonds. In this case, the bonds have a 10-year term. To calculate the amount of discount amortized each interest period, divide the total discount by the number of interest periods. The total discount is the difference between the face value of the bonds ($130,000) and the issue price ($130,000 x 96%). The number of interest periods is the total number of years (10) multiplied by the number of interest payments per year (2). So, the amount of discount amortized each interest period is $650.