Question

on january 1, 2027, shay company issues $430,000 of 8%, 15-year bonds. the bonds sell for $417,100. six years later, on january 1, 2033, shay retires these bonds by buying them on the open market for $450,425. all interest is accounted for and paid through december 31, 2032, the day before the purchase. the straight-line method is used to amortize any bond discount. complete this question by entering your answers in the tabs below. 1. what is the amount of the discount on the bonds at issuance? 2. how much amortization of the discount is recorded on the bonds for the entire period from january 1, 2027, through december 31, 2032?

Explanation:

Step1: Calculate bond discount at issuance

Face value minus issue price:
$\$430,000 - \$417,100 = \$12,900$

Step2: Calculate annual discount amortization

Total discount divided by bond term:
$\frac{\$12,900}{15} = \$860$

Step3: Calculate total amortization over 6 years

Annual amortization times 6 years:
$\$860 \times 6 = \$5,160$

Answer:

1. $\$12,900$
2. $\$5,160$