On January 1, 2007, $5,000,000, 10-year, 8% bonds were issued at $5,150,000. Interest is paid each January 1 and July 1. If the straight-line method of amortization is used to amortize the premium, the monthly amortization amount
The answer is
$1,250
But, I don't know how to work it out??

Quote:

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Originally Posted by Sunshine21

On January 1, 2007, $5,000,000, 10-year, 8% bonds were issued at $5,150,000. Interest is paid each January 1 and July 1. If the straight-line method of amortization is used to amortize the premium, the monthly amortization amount
The answer is
$1,250
But, I don't know how to work it out???

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this is a straight line amortization of the bond premium
150,000 premium divided by 20 semianual periods = 7,500 per period
Semiannual period end... unammort. Premium... carrying value
0)1/1/07... 150,000... 5,150,000
1)7/1/07... 142,500... 5,142,500
2)1/1/07... 135,000... 5,135,000
3... 127,500... 5,127,500
4... 120,000... 5,120,000
5... 112,500... 5,112,500
6... 105,000... 5,105,000
7... 97,500... 5,097,500
8... 90,000... 5,090,000
9... 82,500... 5,082,500
10... 75,000... 5,075,000
11... 67,500... 5,067,500
12... 60,000... 5,060,000
13... 52,500... 5,052,500
14... 45,000... 5,045,000
15... 37,500... 5,037,500
16... 30,000... 5,030,000
17... 22,500... 5,022,500
18... 15,000... 5,015,000
19... 7,500... 5,007,500
20... 0... 5,000,000
to record the interest expense
5,000,000 x .004= 20,000 x 20= 400,000 - 150,000 (premium)= 250,000 / 20 = 12,500
Dr. Bond interest expense... 12,500
Dr. Premium on bonds payable... 7,500
Cr. Cash... 20,000
hope this help you, because I am not sure what exactly your qs was , or what is 1,250 for