Question

On January 1, 2019, Commercial Equipment Sales issued $28,000 in bonds for $15,700. These aresix-year bonds with a stated interest rate of 10%, and pay semiannual interest on June 30 andDecember 31. Commercial Equipment Sales uses the straight-line method to amortize the BondDiscount. What amount is debited to Interest Expense on June 30, 2019?A) $2425 B) $1025 C) $25,067 D) $1400

Answer 1

A) $2425

Step-by-step explanation:

The computation of the interest expense for the June month is shown below:

= (Issued amount × rate × number of months) ÷ (total number of months in a year) + (issued amount - sale value) ÷ (2 × number of months)

= ($28,000 × 10%) × (6 months ÷ 12 months) + ($28,000 - $15,700) ÷ (2 × 6 months)

= ($1,400) - ($12,300 ÷ 2 × 6 months)

= $1,400 + 1,025

= $2,425

The 6 months is calculated from January 1, 2019 to June 30