On January 1, 2021, $ 1,000,000, 5-year, 5% bonds, were issued for $ 957,349. The interest rate in effect when the bonds were issued was 6%. Interest is paid semi-annually on January 1 and July 1. What would be the amount of discount amortized on July 1, 2021?

Question

Quizplus · Accepted Answer

The discount amortized is calculated using the effective interest method. The interest expense for the period is $957,349 * 3% = $28,720. The cash interest paid is $1,000,000 * 2.5% = $25,000. The discount amortized is $28,720 - $25,000 = $3,720.

On January 1, 2021, $ 1,000,000, 5-Year, 5% Bonds, Were