Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below.] On January 1, 2017, Shay issues $350,000 of 10%, 15-year bonds at a price of 97.75. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount. 3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2022? Amortization of discount

Explanation / Answer

Amount that the company receive when it issues the bonds on January 1, 2017      

= $ 3,50,000 x 0.9775

= $ 3,42,125

Amount of the discount on the bonds at January 1, 2017

                                                            = $ 3,50,000 - $ 3,42,125

                                                            = $ 7,875

Amortization of the discount is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2012

                                                            = $ 7,875 x 6/5

                                                            = $ 3,150

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