Question

On January 1, 20X1 when the effective interest rate was 14%, a company issued bonds with a maturity value of $1,000,000. The stated rate of interest is 12%, the bonds pay interest semi-annually and sold for $893,640. The amount of bond discount amortized on July 1, 20X1 is approximately:__________.

Answer 1

Answer: $2,555

Explanation:

Bond discount amortization = Interest cost - Coupon payment

Coupon payment = Stated interest * Par value

= 12% * 1,000,000 * 6/12 months

= $60,000

Interest cost = Issue price * effective interest

= 893,640 * 14% * 6/12

= $62,554.80

Amortized amount:

= 62,554.80 - 60,000

= $2,554.80

= $2,555