Question

On Januaryâ 1, 2019, Always Corporation issues $ 2,800,000â, 5-âyear, 10â% bonds for $ 2,710,000. Interest is paid semiannually on January 1 and July 1. Always Corporation uses the straightline method of amortization. Theâ company's fiscal year ends on December 31. The amount of discount amortized on Julyâ 1, 2019â is:

Answer 1

Answer:

$9,000

Explanation:

If a bond is issued at a lower price than the face value of the bond, then the bond is issued on the discount. This discount is amortized over the bond's life. This amortization will be expensed as Interest Expense.

Discount = Face value - Issuance price = $2,800,000 - $2,710,000 = $90,000

Bond's Life = 5 years

Amortization of discount = $90,000 / 5 = $18,000 annually = $9,000 semiannually

On July 1, 2019, only 6 moth have passed after issuance. so, the amortization will be $9,000