Question

For bonds issued 2019, the taxpayer must amortize bond premium using which of the following methods?

a. Straight-Line Method
b. Constant Yield Method
c. Activity Depreciation Method
d. Double Declining Balance

Answer 1

Answer:

For bonds issued 2019, the taxpayer must amortize bond premium using  the following method:

a. Straight-Line Method.

Explanation:

The premium paid by the taxpayer for a bond represents part of the cost basis of the bond.  The bond premium can be tax-deductible at a rate spread out (amortized) over the bond's lifespan.  The straight-line method for bond premium amortization is considered to be a simpler method than the effective interest amortization method.  While the straight-line amortization divides the bond's total premium over the remaining payment periods, the effective interest, which is more complicated, computes some unique values at all points during the amortization process.