Question

On January 1, $997,000, five-year, 10% bonds, were issued for $967,090. Interest is paid semiannually 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.$49,850

b.$2,991

c.$5,982

d.$29,910

Answer 1

Par value of bonds = $997,000

Cash receipt from issue of bonds = $967,090

Discount on bonds payable = Par value of bonds - Cash receipt from issue of bonds

= 997,000 - 967,090

= $29,910

Maturity period of bond = 5 year

Since, interest will be paid semi annually, hence discount on bonds will be amortized in 10 period.

Semi annually bond discount amortization = Discount on bonds payable/10

= 29,910/10

= $2,991

Correct option is (b)