Reference no: EM132581962

Long-Term Liabilities

If, however, Taft issued the 6 percent bonds at 102, its March 1 entry would be:

Cash [(800,000 x 1.02) + (800,000 x .06 x 2/12)] 824,000

Bonds Payable 800,000

Premium on Bonds Payable (800,000 x .02) 16,000

Interest Expense 8,000

Taft would amortize the premium from the date of sale (March 1, 2017), not from the date of the bonds (January 1, 2017). That is, the amortization period is 118 months [120 (10 x 12) minus two months since issuance]. As a result, the premium amortization at July 1, 2017, is $542.37 [($16,000 / $118 x 4].

Question 1: How you get 118-months (120 (10 x 12) minus two months