A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is
A) $10,420.
B) $5,420.
C) $5,000.
D) $4,580.

Question

Quizplus · Accepted Answer

The bond premium of $4,200 is amortized over 10 periods (5 years semiannually), resulting in $420 amortized per period. The semiannual interest payment is $5,000 ($100,000 * 10% / 2). Therefore, the bond interest expense is $5,000 - $420 = $4,580.

A Corporation Issues $100,000, 10%, 5-Year Bonds on January 1