208. On January 1, 2015, $3,000,000, 10-year, 10% bonds, were issued for $2,916,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is A) $14,000. B) $16,800. C) $700. D) $1,400.

Question

Quizplus · Accepted Answer

The discount on bonds payable which is $84,000 ($3,000,000 issued – $2,916,000 received) will be amortized over the life of the bond ($84,000 ÷ 10 years = $8,400 per year). The annual amortization will be recorded through an adjusting entry at the end of each year. Since interest is paid annually on January 1, the adjusting entry will also be made on January 1.

To find the monthly amortization amount, divide the annual amortization by the number of months in a year:

$8,400 ÷ 12 = $700

Therefore, the monthly amortization amount is $700. Option C is the correct answer.