On January 1, 2014, Solis Co. issued its 10% bonds in the face amount of $6,000,000, which mature on January 1, 2024. The bonds were issued for $6,810,000 to yield 8%, resulting in bond premium of $810,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2014, Solis's adjusted unamortized bond premium should be

Question

Quizplus · Accepted Answer

To determine the adjusted unamortized bond premium at December 31, 2014, we need to first calculate the amount of bond premium to be amortized in the first year.

The total bond premium is $810,000, to be amortized over 20 years (the life of the bonds). Using the effective-interest method and the information given, we can calculate the annual amortization as follows:

Interest expense for 2014 = ($6,000,000 × 0.08) = $480,000
Amortization of bond premium for 2014 = ($810,000 × (480,000/6,000,000)) = $64,800

Therefore, the adjusted unamortized bond premium at December 31, 2014 is:

$810,000 - $64,800 = $745,200

Thus, the correct answer is B) $754,800.