Question

On January 1, Martinez Inc. issued $3,000,000, 11% bonds for $3,195,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of______________.a. $185,130b. $184,500c. $173,550d. $165,000

Answer 1

Answer:

correct option is b. $184,500

Explanation:

given data

issued amount =  $3,000,000

rate = 11%

bonds for = $3,195,000

market rate of interest = 10 %

solution

firs we get here Cash paid that is  

Cash paid = $3,000,000 × 11%

Cash paid  = $330,000

and

Interest expense will be

Interest expense =  $3,195,000 × 10%

Interest expense  = $319,500

so premium amortization is

premium amortization =  $330,000 - $319,500

premium amortization  = $11,500

and premium over the 3 million = 195,000

so

New premium will be as

New premium  = $195,000 - $11,500

New premium = $184,500

so correct option is b. $184,500