On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization.
- What is the net amount of the bond liability to be reported on the December 31,2020 balance sheet?

Question

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The bonds were issued at a premium of $3,000 ($303,000 - $300,000). The premium needs to be amortized over the life of the bonds using the straight-line method. The total premium to be amortized is $3,000, which will be amortized equally over 20 semiannual periods. Each semiannual amortization will be $150 ($3,000 ÷ 20). As of December 31, 2020 (which is the end of the first year since issuance), two semiannual amortizations will have been made for a total amortization of $300 ($150 × 2). Therefore, the net amount of the bond liability to be reported on the December 31, 2020 balance sheet is $302,700 ($300,000 bond liability - $300 amortization + $2,700 premium remaining).