To amortize the cost of a bond, what would the amortization amount be per year for a $1,010 bond over 20 years?

To determine the annual amortization amount for a bond that has a cost of $1,010 over 20 years, it is essential first to understand that amortization in this context refers to spreading the difference between the bond’s cost and its face value evenly over the life of the bond.

Assuming the bond has a face value of $1,000 (the typical par value for bonds), the amount to be amortized is the difference between the cost of the bond and the face value, which is $1,010 - $1,000 = $10.

Since this $10 needs to be amortized over 20 years, the annual amortization amount is calculated by dividing the total amount to be amortized by the number of years. Therefore, $10 divided by 20 results in an annual amortization of $0.50 per year.

This calculation aligns with the principles of bond accounting and the effective interest method, where the cost of a premium or discount on the bond is amortized over the life of the bond, thus reflecting the actual expense more accurately on the financial statements.