[cpawax]

Becker Question –

Here is the screenshot for the question: https://i.imgur.com/VaOi49U.png?1

In the explanation I don’t understand where the 15/75 comes from which you are supposed to multiply by 15000.

[Anonymous]

I kind of remember this problem, and wondered the same thing. In school I was always taught we use effective interest, so that's all we learned.

You have to amortize the premium over the useful life of the bond for straight line.

It is a 7 year bond that was purchased in October 1, x1. Therefore, there are 75 months in its life.

There have been 15 months that have past since you bought the bond. Oct. 1, x1- Dec. 31, x2.

(15/75)* 15,000 is the amortized portion.

(60/75)* 15,000 is the unamortized portion.

[cpawax]

Thank you for the quick reply.

I really need to start reading these problems better. I always forget to look for when the bonds were purchased or issued, so I always end up accounting for a full year. Thanks for your help.

[Author]

Replies