Webb Co. has outstanding a 7%, 10 year $100,000 face-value bond.  The bond was originally sold to yeild 6% annual interest.  Webb uses the effective interest rate method to amortize bond premium.  On June 30, 1992, the carrying amount of the outstanding bond was $105,000.  What amount of unamortized premium on bond should Webb report in its June 30, 1993, balance sheet?

A. $1,050

B. $3,950

C. $4,300

D. $4,500

The answer is "C".  I thought it'd be D.

Can someone please explain what I am missing here.

Thanks,

Since you have a bond with a premium, one need to remember that the bond as time gets closers needs to get closer to 100,000 (the actual amount to be paid). Therefore, the unamortized premium needs to be lower as you amortize the premium.

Data given:

105,000 CV

Premium Unmortized 5000

your calculations for 1993

CV 105,000*.06 = 6300

Bond face 100,000 *.07 = 7000

The premium amortization 700 = (7000 - 6300)

Unamortized premium 4300  (5000-700)

hope it helps.