Hooker Company sells $200,000 of ten-year,8% bonds to yield 10% on January 1,2014.The bonds pay interest annually on December 31.The bonds were sold at a discount of $24,578.The amount of bond discount amortization for 2015 is
A)$1,696.
B)$2,458.
C)$3,080.
D)$4,000.

Question

Quizplus · Accepted Answer

The bond discount amortization for 2015 can be calculated using the effective interest method. The interest expense for 2015 is the carrying amount of the bond at the beginning of 2015 multiplied by the yield rate (10%). The carrying amount at the beginning of 2015 is $175,422 ($200,000 - $24,578 + $1,696 amortized in 2014). The interest expense is $17,542.20, and the cash interest paid is $16,000 (8% of $200,000). The difference, $1,696, is the amortization for 2015.

Hooker Company Sells $200,000 of Ten-Year,8% Bonds to Yield 10