Austin Corporation sold its $1,000,000, 7%, ten-year bonds to the public on January 1, 20A. The bonds pay interest annually, beginning on December 31, 20A. Austin received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were sold was 5%.
(a) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "effective-interest" method is used. $
(b) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "straight-line" method is used. $________
(c) Which method above is theoretically the better to use for amortizing a bond premium?

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The Answer of Austin Corporation sold its $1,000,000, 7%, ten-year bonds to the public on January 1, 20A. The bonds pay interest annually, beginning on December 31, 20A. Austin received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were sold was 5%.
(a) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "effective-interest" method is used. $
(b) Compute the amount of the premium that Austin Corporation should amortize on December 31, 20A, assuming the "straight-line" method is used. $________
(c) Which method above is theoretically the better to use for amortizing a bond premium?

Austin Corporation Sold Its $1,000,000, 7%, Ten-Year Bonds to the Public