Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is
A) $10,290
B) $2,710
C) $2,500
D) $2,290

Question

Quizplus · Accepted Answer

Bond interest expense to be recognized on July 1 = {[(Face value of bonds × 10% × 1/2 year)] - [(Bond realization - Face value) ÷ (5 years × 2)]} × 2 = {[$50,000 × 10% × 1/2 year] - [($52,100 - $50,000) / (5 years × 2)]} = ($2,500 - $210) = $2,290

Franklin Corporation Issues $50,000, 10%, 5-Year Bonds on January 1