Question

Jones Company issued bonds with a $200,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7½% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

Answer 1

interest expense = = $16200

Step-by-step explanation:

Given data:

face value of bonds is $200,000

stated interest rate is 7.5%

interest expense is given as

interest expense = cash payment + discount amortized

cash payment = face value × stated interest rate

= 200,000 × 7.5

`Discount\ amortized  = ( discount\ on\ bond)/(duration\ of\ bond)`

Discount on bond = face value - issue price

= 200000 - (200000 × 97%)

= $6000

interest expense
`= 200,000* 7.5 + (6000)/(5)`

interest expense = = $16200