Financial Accounting Quiz: Bond Premium Discount Amortization
4 questions · exam conditions
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Bond Premium Discount AmortizationQuestion 1 of 4

On July 1, Year 1, XYZ Corp. issued $300,000 of 6% bonds at 96, maturing in 8 years with semiannual interest payments. The company uses straight-line amortization. What amount of interest expense will be recorded for the interest payment on January 1, Year 2?

$9,000
$9,375
$9,750
$8,625
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Financial Accounting Quiz

Financial Accounting Quiz: Bond Premium Discount Amortization

Practice Bond Premium Discount Amortization in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Bond Premium Discount Amortization, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

On July 1, Year 1, XYZ Corp. issued $300,000 of 6% bonds at 96, maturing in 8 years with semiannual interest payments. The company uses straight-line amortization. What amount of interest expense will be recorded for the interest payment on January 1, Year 2?

  1. $9,000
  2. $9,375
  3. $9,750 (correct answer)
  4. $8,625
Explanation: The bonds were issued at a discount of 12,000(12,000 (300,000 - $288,000). Over 8 years (16 semiannual periods), discount amortization per period is 750(750 (12,000 ÷ 16). Interest expense = cash interest + discount amortization = ($300,000 × 6% × 6/12) + $750 = $9,000 + $750 = $9,750. Choice A is only the cash interest payment. Choice B incorrectly calculates amortization over 8 periods instead of 16. Choice D subtracts the amortization instead of adding it.

Question 2

A company issued $750,000 of bonds at 103.2 on October 1, Year 1, maturing on September 30, Year 6. Interest of 6% is paid annually on September 30. The company's fiscal year ends on December 31. Using straight-line amortization, what amount should be reported as premium on bonds payable on December 31, Year 3?

  1. $24,000
  2. $14,400 (correct answer)
  3. $16,800
  4. $12,000
Explanation: Premium = $750,000 × 3.2% = $24,000. Annual amortization = $24,000 ÷ 5 years = $4,800. By December 31, Year 3, two full annual amortization periods have occurred (September 30, Year 2 and September 30, Year 3). Total amortization = $4,800 × 2 = $9,600. Remaining premium = $24,000 - $9,600 = $14,400. Choice A is the original premium. Choice C assumes 1.5 years of amortization. Choice D assumes 2.5 years of amortization.

Question 3

A company issued $500,000 of 8% bonds at 104 on January 1, Year 1. The bonds mature in 10 years and pay interest semiannually. Using the straight-line method, what is the carrying amount of the bonds on December 31, Year 3?

  1. $518,000
  2. $516,000
  3. $514,000 (correct answer)
  4. $512,000
Explanation: The bonds were issued at 104, so the issue price was 520,000(520,000 (500,000 × 1.04). The premium is 20,000(20,000 (520,000 - $500,000). Over 10 years (20 semiannual periods), the premium amortization per period is 1,000(1,000 (20,000 ÷ 20). After 3 years (6 periods), total amortization is $6,000. Carrying amount = $520,000 - $6,000 = 514,000.ChoiceAincorrectlyusesannualamortization(514,000. Choice A incorrectly uses annual amortization (2,000 × 3 = $6,000 subtracted incorrectly). Choice B uses 4 periods instead of 6. Choice D uses 8 periods instead of 6.

Question 4

A corporation issued $800,000 of 10-year, 5% bonds at 102.5 on April 1, Year 1. Interest is paid annually on March 31. Using straight-line amortization, what is the bond premium balance remaining on March 31, Year 4?

  1. $20,000
  2. $14,000 (correct answer)
  3. $12,000
  4. $16,000
Explanation: Initial premium = $800,000 × 2.5% = $20,000. Annual premium amortization = $20,000 ÷ 10 years = $2,000. After 3 years (from April 1, Year 1 to March 31, Year 4), total amortization = $2,000 × 3 = $6,000. Remaining premium = $20,000 - $6,000 = $14,000. Choice A is the original premium amount. Choice C assumes 4 years of amortization. Choice D assumes 2 years of amortization.