Question

On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. 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 semiannual amortization amount is
a. $8,000
b. $2,000
c. $4,000
d. $10,000

Answer 1

Answer:

semi annual amortization amount = $4,000

so correct option is c. $4,000

Explanation:

given data

bond amount = $2,000,000

time = 5 year

rate = 10%

issued amount  = $1,960,000

to find out

discount on bonds payable semiannual amortization amount

solution

we get here total discount on bond that is express as

total discount on bond = bond amount - issued amount  

total discount on bond = $2,000,000 - $1,960,000

total discount on bond = $40,000

so by straight line amortization amount is

amortization amount = $\frac{40000}{10}$

semi annual amortization amount = $4,000

so correct option is c. $4,000