Gordon Corporation issued $500,000 par value, 6%, 5-year bonds on January 1, 2019. The bonds mature on December 31, 2023 and pay semi-annual interest. The market rate on the date of issue is 8%. Assuming that Gordon uses the straight-line method, what amount of discount amortization is recorded on June 30, 2019?

Question

Quizplus · Accepted Answer

The total discount is calculated as the difference between the par value and the present value of the bonds using the market rate. The discount is then amortized evenly over the 10 periods (5 years, semi-annual). The correct discount amortization for one period is $4,055.40.

Gordon Corporation Issued $500,000 Par Value, 6%, 5-Year Bonds on January