Twenty-year, 6% bonds with a face value of $550,000 are issued at 102 on January 1 of the current year. How much of the premium will be amortized under the straight-line method in the first
Semi-annual interest period?

Question

Quizplus · Accepted Answer

The premium on the bonds is calculated as ($550,000 * 102%) - $550,000 = $11,000. Under the straight-line method, this premium is amortized evenly over the life of the bonds. Since the bonds are 20-year bonds with semi-annual interest payments, there are 40 periods (20 years * 2). Therefore, the amortization per period is $11,000 / 40 = $275.

Twenty-Year, 6% Bonds with a Face Value of $550,000 Are