Question

On January 1, 2017, Shay issues $420,000 of 9%, 12-year bonds at a price of 97.25....

On January 1, 2017, Shay issues $420,000 of 9%, 12-year bonds at a price of 97.25. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount.

3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2022?
  

Amortization of discount
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Answer #1

Par value of bonds = $420,000

Issue price = 97.25

Cash received from issued bonds = Par value of bonds x Issue price

= 420,000 x 97.25%

= 408,450

Discount on bonds payable = Par value of bonds- Cash received from issued bonds

= 420,000-408,450

= $11,550

Annual amortization of bond discount = Discount on bonds payable/ Bond life

= 11,550/12

= $962.50

Amortization of discount from January 1, 2017 to December 31, 2017 = Annual amortization of bond discount x 6

= 962.50 x 6

= $5,775

Amortization of discount $5,775

Kindly comment if you need further assistance. Thanks

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