Question

On January 1, $5,000,000, 10-year, 10% bonds were issued at $5,200,000. Interest is paid annually each January 1. The straight-line method of amortization is used to amortize the premium. How much premium is amortized at the end of the first year?

Answer 1

$20,000 premium is amortized at the end of the first year.

Step-by-step explanation:

Straight line amortization:

premium amortized = Premium / number of years

= ($5,200,000 - $5,000,000) / 10 years

= $200,000 premium / 10 years

= $20,000

Therefore, $20,000 premium is amortized at the end of the first year.