Simpson Corporation purchased $30,000 of Tekservice Corporation's 12 percent bonds for $27,345 plus accrued interest on March 1, 2012. The bonds mature on January 1, 2022, and interest is payable on June 30 and December 31. How much discount or premium should be amortized on June 30, 2012, under the straight-line method?

Question

Quizplus · Accepted Answer

The total discount on the bonds is $30,000 - $27,345 = $2,655. The bonds have a maturity period of 10 years (from March 1, 2012, to January 1, 2022). The straight-line amortization of the discount per period (every 6 months) is $2,655 / 20 periods = $132.75. However, since the question asks for the amount to be amortized by June 30, 2012, which is only 4 months from March 1, 2012, the correct amount is $132.75 * (4/6) = $90.00.

Simpson Corporation Purchased $30,000 of Tekservice Corporation's 12 Percent Bonds