Question

On January 1, $837,000, 5-year, 10% bonds were issued for $811,890. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize a discount on bonds payable, the semiannual amortization amount is

Answer 1

The first step is to calculate the total discount on the bonds, which is the difference between the face value of the bonds and the proceeds from the sale of the bonds:

Discount = Face Value - Proceeds
Discount = $837,000 - $811,890
Discount = $25,110

Next, we need to calculate the total number of semiannual periods over the life of the bonds. Since the bonds have a 5-year term and interest is paid semiannually, there are 10 semiannual periods:

Number of Semiannual Periods = 5 years x 2 semiannual periods per year
Number of Semiannual Periods = 10

Finally, we can calculate the semiannual amortization amount by dividing the total discount by the number of semiannual periods:

Semiannual Amortization Amount = Discount / Number of Semiannual Periods
Semiannual Amortization Amount = $25,110 / 10
Semiannual Amortization Amount = $2,511

Therefore, the semiannual amortization amount for the discount on these bonds using the straight-line method is $2,511.