On January 1, 2012, Aye Corp issues $100,000, 10%, 5-year bonds for $108,111. The market interest rate is 8%. Interest is paid semi-annually on January 1 and July 1. To the nearest dollar, the amount of premium amortized on July 1, 2012 is
A)$8,649.
B)$5,000.
C)$4,324.
D)$676.

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. The cash interest paid is $5,000. The premium amortized is $5,000 - $4,324 = $676.

On January 1, 2012, Aye Corp Issues $100,000, 10%, 5-Year