iteracom

ZeroBonus Wrote:
-------------------------------------------------------
> so what's the process for a bond bought at a
> premium?
>
> interest income = original P * original interest
> rate?
>
> or do we add the amortization premium and get back
> to 2500?

I am not recalling any 2500 number that you are talking about.

But extending my earlier example above, if the bond is being sold at a premium, the coupon of 5% is above the market interest of say 4% at the time the bond was purchased.

Again, as mentioned by jps1, the interest income for the first year will be 1050 * 0.04 = $42.
So, coupon of $50 minus $8 amortization of premium = $42 is what is recorded in the income statement for year 1.
The bond's carrying value in the balance sheet at the end of the first year is $1,050 minus $8 amortization = $1,042.

Best of luck to you all in your forthcoming exams.