Question

On January 1, 2018 Legion Company sold $200,000 of 10%, ten-year bonds. Interest payable semiannually in June 30 and December 31 the bonds were sold for $177,000, priced to yield 12. Legion records interest at the effective rate.

Legion shoud report bond interest expense for the six months ended June 30, 2018, in the amount of:

A) $8,850
B) $10,000
C) $10,620
D) $12,000

Legion should pay cash interest for the six months ended June 30, 2018, in the amount of:

A) $8,850
B) $10,000
C) $10,620
D) $12,000

Answer 1

1. Option (C) is correct.

2. Option (B) is correct.

Step-by-step explanation:

Given that,

On January 1, 2018

Legion Company sold = $200,000

Interest = 10% (Interest payable semiannually in June 30)

December 31, the bonds were sold = $177,000

1. Interest expense recorded by legion for the six month ended June 30, 2018 is:

`=177,000* 0.12*(6)/(12)`

= $10,620

2. Interest paid by legion for the six month ended June 30, 2018 is :

`=200,000* 0.10*(6)/(12)`

= 10,000