On January 1,XYZ Corporation issued $200,000 of 8%,5year bonds when the market rate of interest was 6%.The bonds were issued for $216,849 and interest will be paid annually on December 31.How much premium amortization will XYZ record on the first interest payment date using the effective-interest method?
A) $0
B) $13,011
C) $16,000
D) $2,989

Question

Quizplus · Accepted Answer

The premium amortization is calculated as the difference between the interest expense and the actual interest paid. The interest expense is the carrying amount of the bonds ($216,849) multiplied by the market rate (6%), which equals $13,011. The actual interest paid is the face value of the bonds ($200,000) multiplied by the coupon rate (8%), which equals $16,000. The premium amortization is $16,000 - $13,011 = $2,989.

On January 1,XYZ Corporation Issued $200,000 of 8%,5year Bonds When