contestada

A company issues $500,000 of 9%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $480,000, yielding a discount of $20,000. Using the straight-line amortization method, the company will amortize the discount by ________ on each semiannual interest payment.

Respuesta :

hoangkhangpham94

Answer:

The answer is: The company will amortize the discount by $1,000 on each semiannual interest payment.

Explanation:

Please find the below for detailed explanations and calculations:

Because at the time of issuance, the company has received $480,000 cash for the issuance of $500,000 face value of bonds, it had issued at an discount of $20,000 ( $500,00 - $480,000).

Moreover, the company uses straight-line amortization method, so this $20,000 discount on bond payable will be amortized equally through 20 interest payments of bond life ( that is, calculated as 10 years x 2 payment per year).

Thus, the amount of discount amortization recorded at each interest payment is $20,000 / 20 = $1,000.