On July 1, 2016, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2016, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. What is the net amount of the bond liability to be reported on the December 31, 2016 balance sheet?

Question

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The bond premium of $3,000 ($303,000 - $300,000) is amortized over 20 periods (10 years x 2). Each period, $150 ($3,000/20) is amortized. By December 31, 2016, one period has passed, so the premium is reduced by $150. The net bond liability is $300,000 + ($3,000 - $150) = $302,850.