A corporation issues $100,000, 10%, 5-year bonds on January 1, 2014 for $108,111, at a price to yield 8%. Interest is paid semi-annually on January 1 and July 1. The amount of premium amortized on July 1, 2014 is
A) $5,000
B) $4,324
C) $676
D) $8,649

Question

Quizplus · Accepted Answer

The premium amortization is calculated using the effective interest method. The interest expense for the period is $108,111 * 4% = $4,324.44. The actual interest payment is $5,000. The premium amortized is $5,000 - $4,324.44 = $675.56, rounded to $676.

A Corporation Issues $100,000, 10%, 5-Year Bonds on January 1