Question

On January 1, 2017, $2010000, 10-year, 10% bonds, were issued for $1950000. 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

The monthly amortization amount is: $500.

Step-by-step explanation:

As provided in the question:

Face value of the bond = $2,010,000

Issue price of the bond = $1,950,000

Discount on the bond payable = $60,000

Interest rate is 10%

Interest period = yearly starting on January 1 over 10 years

Applying the straight-line method to amortize discount on bonds payable, the discount on the bond payable is amortized uniformly over the interest period above.

Therefore, annual discount is: $60,000 / 10 years = $6,000

On January 1 of every year, $6,000 discount is paid

However, the monthly amortization amount is $6,000 / 12 = $500.