Amortizing Bond Premium

Amortizing Bond Premium - (To record accrued bond interest...

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Amortizing Bond Premium The amortization of bond premium parallels that of bond discount. Illustration 10A-3 presents the formula for determining bond premium amortization under the straight-line method. Formula for straight-line method of bond premium amortization Continuing our example, assume Candlestick Inc., sells the bonds described above for $102,000, rather than $98,000. This results in a bond premium of $2,000 ($102,000 - $100,000). The premium amortization for each interest period is $400 ($2,000 ÷ 5). Candlestick records the first accrual of interest on December 31 as follows. Bond Interest Expense Premium on Bonds Payable Bond Interest Payable
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Unformatted text preview: (To record accrued bond interest and amortization of bond Over the term of the bonds, the balance in Premium on Bonds Payable will decrease annually by the same amount until it has a zero balance at maturity. A bond premium amortization schedule, as shown in Illustration 10A-4 , is useful to determine interest expense, premium amortization, and the carrying value of the bond. As indicated, the interest expense Candlestick records each period is $9,600. Note that the carrying value of the bond decreases $400 each period until it reaches its face value of $100,000 at the end of period 5. Illustration 10A-4 Bond premium amortization schedule...
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.

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Amortizing Bond Premium - (To record accrued bond interest...

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