Question

On January 1, 2015, $3,000,000, 5-year, 10% bonds, were issued for $2,916,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is:

Answer 1

amortization amount per month: $ 1,400

Step-by-step explanation:

the discount will be the difference between the face value and the value at which the bonds were actually issued:

3,000,000 - 2,916,000 = 84,000

Now to calculate the straight-line amoritzation we divide by the total number of payment:

5 years x 2 payment per year = 10 payment

$84,000 discount / 10 payment = 8,400 amotization per payment

payment are made between 6 month thus, monthly amortization: 8,400 / 6 = 1,400