On January 1, 2010, the Krueger Co.issued $140, 000 of 20-year 8% bonds for $172, 000.Interest was payable annually.The effective yield was 6%.The effective interest method was used to amortize the premium.What amount of premium would be amortized for the year ended December 31, 2011?

Question

Quizplus · Accepted Answer

The premium amortization for 2011 is calculated by taking the difference between the interest expense (calculated using the effective yield) and the actual interest paid. The interest expense for 2011 is $172,000 * 6% = $10,320. The actual interest paid is $140,000 * 8% = $11,200. The premium amortized is $11,200 - $10,320 = $880. However, since the question asks for the amount for the year ended December 31, 2011, we need to consider the amortization for the second year, which is slightly different due to the change in carrying amount. The correct premium amortization for 2011 is $932.80.