Twenty-year bonds with a face value of $400,000 are issued on January 1 of the current year at 102.How much premium will be amortized under the straight-line method in the first semi-annual interest period?

Question

Quizplus · Accepted Answer

The premium on the bonds is $8,000 ($400,000 x 102% - $400,000). Under the straight-line method, the premium is amortized over the life of the bonds, which is 20 years. Therefore, the premium amortization for the first semi-annual interest period is $8,000 / 40 = $200.

Twenty-Year Bonds with a Face Value of $400,000 Are Issued