Neville Company issued $100,000 of 6%, 10 year bonds when the market rate of interest was 5%.The proceeds from this bond issue were $107,732.Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.

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Quizplus · Accepted Answer

The premium amortization for the first period is calculated as the difference between the interest expense based on the market rate and the actual interest payment. The interest expense is $107,732 * 5% = $5,386.60, and the interest payment is $100,000 * 6% = $6,000. The amortization is $6,000 - $5,386.60 = $613.40, rounded to $613.

Neville Company Issued $100,000 of 6%, 10 Year Bonds When