Question

On January 1, $872,000, five-year, 10% bonds, were issued for $845,840. Interest is paid semi annually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize the discount on bonds payable, the semiannual amortization amount is a.$26,160 b.$43,600 c.$5,232 d.$2,616

Answer 1

d) $2,616

Step-by-step explanation:

The bonds were issued for a discount of $ 26,160 i.e Face value $ 872,000 minus Issued value $ 845,840.

The period of the bonds is 5 years and the company amortizes the discount on a straight line basis which means that it amortizes over the period of the bond i.s 5 years = 60 months .

So for six months it shall be 10 % of the total discount i.e $ 2,616.