On January 1,2014,Always Corporation issues $3,000,000,5-year,10% bonds for $2,910,000.Interest is paid semiannually on January 1 and July 1.Always Corporation uses the straight-line method of amortization.The company's fiscal year ends on December 31.The amount of discount amortized on July 1,2014 is:
A)$4,500.
B)$9,000.
C)$18,000.
D)$90,000.

Question

Quizplus · Accepted Answer

The discount on bond issue is $90,000 ($3,000,000 - $2,910,000). The bond has a 5-year term and the company uses the straight-line method, which means that $18,000 ($90,000/5) of the discount is amortized each year. Since interest is paid semiannually, the amount of discount amortized on July 1, 2014, will be half of the annual amortization, which is $9,000.

On January 1,2014,Always Corporation Issues $3,000,000,5-Year,10% Bonds for $2,910,000