Reference no: EM132571314

Amortization of Premium or Discount

Bonds payable are dated January 1, 2016, and are issued on that date. The face value of the bonds is $100,000, and the face rate of interest is 14%. The bonds pay interest semiannually. The bonds will mature in five years. The market rate of interest at the time of issuance was 12%.

Use the appropriate present value table:

PV of $1 and PV of Annuity of $1

Required:

Note: When computing the issue price of the bonds, round your answer to the nearest dollar. Then use the rounded amount in subsequent computations.

Question 1. Using the effective interest amortization method, what amount should be amortized for the first six-month period? What amount of interest expense should be reported for the first six-month period? Round your answers to the nearest cent.

Question 2. Using the effective interest amortization method, what amount should be amortized for the period from July 1 to December 31, 2016? What amount of interest expense should be reported for the period from July 1 to December 31, 2016? Round your answers to the nearest cent.