On January 1 2015 Fennis Company issued its 10 bonds in the

On January 1, 2015, Fennis Company issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2025. The bonds were issued for $3,402,600 to yield 8%. Fennis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2016, the adjusted unamortized bond premium should be

Solution

Total premium on bonds payable = 3402600-3000000 = 402600

at the end of 2015:

Interest expense = 3402600*8% = 272208

Interest paid = 3000000*10% = 300000

Amortized premium on bonds payable = (300000-272208) = 27792

at the end of 2016:

Interest expense = (3402600-27792)*8% = 269985

Interest paid = 300000

Amortized premium = 30015

At december 31,2016 the adjusted unamortized bond premium should be = (402600-27792-30015) = $344793