Question

On January 1 $2000000, 5 year, 10%, were issued for $1960000. Interest is said semiannually on Jan 1 and July 1. If the issuing corporation uses the straight line method to amortize discount on bonds payable, the semiannual amortization amount is what ?? a. 8000 b.2,000 c.$4000 d. 10000

Answer 1

Par value of bonds = $2,000,000

Issue price of bonds = $1,960,000

Discount on bonds payable = Par value of bonds- Issue price of bonds

= 2,000,000-1,960,000

= $40,000

Bond life = 5 years

Semi annual interest payment periods = 10

Semi annual bond discount amortization = Discount on bonds payable/ Semi annual interest payment periods

= 40,000/10

= $4,000

The semiannual amortization amount is $4,000

Correct option is c.

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