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Webb Company: amount of unamortized premium

Webb Company has outstanding a 7% annual, 10-year, $100,000 face value bond that was issued by the company several years ago. The bond was originally sold to yield 6% annual interest. Webb uses the effective interest rate method to amortize the bond premium. On June 30, 2005 the carrying amount of the outstanding bond was $105,000.

Required

What amount of unamortized premium on the bond should Webb report in its June 30, 2006 balance sheet?

Solution Preview

FV = 100,000
N = 10
Payment each period = 100,000 * 7% = 7,000
Yield rate = 6%
Then using a financial calculator, or EXCEL command ...

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$2.19