[mjbey1s]

On October 1, Year 1, Park Co. purchased 200 of the $1,000 face value, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, Year 8, pay interest semiannually on January 1 and July 1. Park used the straight-line method of amortization under U.S. GAAP and appropriately recorded the bonds as a long-term investment. On Park’s December 31, Year 2 balance sheet, the bonds should be reported at:

Choice “a” is correct. $212,000 carrying value on the balance sheet at 12-31-Year 2.
Purchase price, including interest $ 220,000
Less accrued interest (5,000)
215,000
S/L amortization of bond premium ($15,000 x 15/75)=(3,000)
Carrying value at 12-31-Year 2 $ 212,000

Can someone please explain why they are taking 15,000 x 15/75?

Thanks in advance!

[Lou]

The key word is straight line amortization. Aka what they did is calculate the number of months until the bond matures and the number of months that had passed and multiplied it by that fraction to get the amortization

FAR- taken 8/11/16....now the wait begins
AUD- scheduled 9/8/16
BEC- scheduled 10/9/16
REG-scheduled 12/10/16

Live a few years like most people won't, to live the rest of your life like most people can't.

[cpaMD86]

They are amortizing the 15,000 premium (215-200). The 15 is the time that has lapsed from the purchase to the balance sheet date, and the 75 is the number of months to maturity.

FAR: 9/3

[mjbey1s]

Thanks so much for the help. Struggling on bonds and leases….

[Author]

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