Question

Webb Co. has outstanding a 7%, 10-year bond with a $100,000 face amount. The bond was originally sold to yield 6% annual interest. Webb uses the effective-interest method to amortize bond premium. On June 30, Year 3, the carrying amount of the outstanding bond was $105,000. What amount of unamortized premium on the bond should Webb report in its June 30, Year 4, balance sheet?

Answer 1

Answer:

$4,300

Explanation:

The amount of the unamortized premium on the bond is shown below:

The interest expense on June 30 is

= $105,000 × 6%

= $6,300

And on the face value, the interest expense is

= $100,000 × 7%

= $7,000

The difference of the interest expense is

= $7,000 - $6,300

= $700

Now the difference of the bond is

= $105,000 - $100,000

= $5,000

So, the mount of unamortized premium on the bond is

= $5,000 - $700

= $4,300