On 10/1, Year 1, P Co., purchased 200 of the $1,000 FV, 10% bonds of O, Inc for $220K, including accrued interest of $5K. The bonds, which mature on 1/1, Year 8, pay interest semiannually on Jan 1 and July1.  Park used the straight-line method of amortization and appropriately recorded the bonds as a long-term investement. On Park's 12/31, Year 2 balance sheet, the bonds should be reported at: Answer: $212,000, Solution: $220 less ($5k) = $215 less ($3k) [$15 x 15/75]

How did they get the period 15/75 ?

Thanks.

Hi JD7612,

Since they paid $220K which includes $5K of accrued interest, there is $15K of Premium amortization, which is $200 per mo for 75 months (3 mos in Year 1 and 72 months until 1/1 Year 8).

Therefore, on the Balance Sheet for 12/31/ Year 2 you should report $212,000 which is $200,000 face value plus $12,000 of Premium left ($15,000 - $3,000 [$200 x 15 months amortization (3 months in year 1 and 12 in year 2)

Good Luck!