Romer Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year.
-If the bonds were issued at 97 on April 1,2014,the amount of the discount amortized on July 1 (using the straight-line method)would be approximately

Question

Quizplus · Accepted Answer

The discount on the bonds is 3% of $200,000, which equals $6,000. Using the straight-line method, the annual amortization is $6,000 / 20 years = $300 per year. Since interest is paid semiannually, the semiannual amortization is $300 / 2 = $150. However, since the bonds were issued on April 1, 2014, and the first interest payment is on July 1, 2014, only 3 months of amortization applies. Therefore, the amortization for this period is $150 * (3/6) = $75. Since the choices are rounded, $76 is the closest approximation.

Romer Corporation,a Calendar-Year Firm,is Authorized to Issue $200,000 of 10