Does anyone here know accounting? Need help!! Straight-line method of amortization?

Question

I'm stayin up all night because I can't figure this out.

Can anyone show me step by step how the Straight-line method of amortization work?

Suffolk Corporation issued $92,000 of 20year, 6 percent bonds at 98 on one of its semiannual interest dates. The straightline method of amortization is to be used. how much bond interest expense will be recorded on the next interest payment date?

a. 2,806
b. 5,520
c. 5,566
d. 2760

Answer 1

Ok, I'll hold your hand:-)

If the bond was issued at 98, Suffolk would receive only $90,160, but it'd have to pay back $92,000 at maturity, i.e. there's a bond discount of $1,840.
When the bond was issued, your journal entry:
Dr Cash 90,160
Dr Bond discount 1,840
Cr Bond payable 92,000

Since interest is payable semi-annually, the next interest payment would be 6 mths later. Your principal is $92,000 and your interest rate is 6%, so every year, interest is $5,520, or $2,760 every 6 mths. Your bond discount has to be amortised over 40 periods (20 yrs x 2 periods per yr), or $46 per period. Your journal entry:
Dr Interest expense 2,806
Cr Bond discount 46
Cr Cash 2,760

So the answer is (a).

There's an excellent lecture on this at the link.

Answer 2

This Site Might Help You.

RE:
Does anyone here know accounting? Need help!! Straight-line method of amortization?
I'm stayin up all night because I can't figure this out.

Can anyone show me step by step how the Straight-line method of amortization work?

Suffolk Corporation issued $92,000 of 20year, 6 percent bonds at 98 on one of its semiannual interest dates. The straightline method of...

Answer 3

cant tell u the step by step proccess ......


http://www.unclefed.com/IRS-Forms/2001/HTML/p5500303.html

http://www.missouribusiness.net/irs/taxmap/pubs/p225-035.htm

http://www.law.wayne.edu/mcintyre/text/Taxation_Class/Depreciation.PDF