Question

On January 1, 2020, Always Corporation issues $2,600,000, 5-year, 10% bonds for $2,950,000. Interest is paid semiannually on January 1 and July 1. Always Corporation uses the straight-line method of amortization. The company's fiscal year ends on December 31. The amount of premium amortized on July 1, 2020 is:

Answer 1

$17,500

Step-by-step explanation:

In order to determine the amount of premium amortized on July 1,2020,it is important to know the total amount of premium on the bond issue itself,which is computed thus:

Premium on bond issue=Cash proceeds-face value of the bond

cash proceeds is $2,950,000

face value of the bond is $2,600,000

Premium on the bond issue=$2,950,000-$2,600,000=$350,000

Yearly amortization of premium=$350,000/10=$35,000

However only six months of premium amortization was required on July 1 2020,hence the amount amortized would be $17,500($35,000*6/12)