D is corrent. Bond issue costs are treated as deferred charges and amortized on a straight-line basis over the life of the bond. These five-year bonds were issued five months late (4/1/Y1 to 8/31/Y1), so they will be outstanding only fifty-five months (60 - 5). During year 1, the bonds were outstanding for four months (8/31/Y1 to 12/31/Y1). Therefore, the bond issue costs must be amortized for four months out of fifty-five months total, resulting in bond issue expense of $480 ($6,600 × 4/55).
A is incorrect. Bond issue costs are treated as deferred charges and amortized on a straight-line basis over the life of the bond. These five-year bonds were issued five months late (4/1/Y1 to 8/31/Y1), so they will be outstanding only fifty-five months (60 - 5). During year 1, the bonds were outstanding for four months (8/31/Y1 to 12/31/Y1). Therefore, the bond issue costs must be amortized for four months out of fifty-five months total, resulting in bond issue expense of $480 ($6,600 × 4/55).
B is incorrect. Bond issue costs are treated as deferred charges and amortized on a straight-line basis over the life of the bond. These five-year bonds were issued five months late (4/1/Y1 to 8/31/Y1), so they will be outstanding only fifty-five months (60 - 5). During year 1, the bonds were outstanding for four months (8/31/Y1 to 12/31/Y1). Therefore, the bond issue costs must be amortized for four months out of fifty-five months total, resulting in bond issue expense of $480 ($6,600 × 4/55).
C is incorrect. Bond issue costs are treated as deferred charges and amortized on a straight-line basis over the life of the bond. These five-year bonds were issued five months late (4/1/Y1 to 8/31/Y1), so they will be outstanding only fifty-five months (60 -5). During year 1, the bonds were outstanding for four months (8/31/Y1 to 12/31/Y1). Therefore, the bond issue costs must be amortized for four months out of fifty-five months total, resulting in bond issue expense of $480 ($6,600 × 4/55).
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