Star Inc. was authorized to issue $1,000,000 of 12 percent bonds. On April 1, 20

Question

Star Inc. was authorized to issue $1,000,000 of 12 percent bonds. On April 1, 2016, the corporation issued bonds with a face value of $160,000 at a price of 102.0. The bonds mature 10 years from the date of issue. Interest is payable semiannually on October 1 and April 1.

Using the data given above, what amount of premium will be amortized by Star Inc. on October 1, 2016, using straight-line amortization?

Star Inc. was authorized to issue $1,000,000 of 12 percent bonds. On April 1, 2016, the corporation issued bonds with a face value of $160,000 at a price of 102.0. The bonds mature 10 years from the date of issue. Interest is payable semiannually on October 1 and April 1.

Explanation / Answer

Calculate premium amortization on october 1,2016:

Premium on bonds payable = (160000*102/100)-160000 = 3200

No of year amortization = 10*2 = 20

Premium amortization on october 1,2016 = 3200/20 = 160

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