Micro Corp., a calendar-year accrual-basis corporation, purchased a five-year, 8%, $100,000 taxable corporate bond for $108,530 on July 1, 2012, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro’s 2012 tax return, the bond premium amortization for 2012 should be
I. Computed under the constant yield to maturity method.
II. Treated as an offset to the interest income on the bond.