Question

Hsu Company issued $100,000 of 8% bonds on January 1, 20Y8, at face value. The bonds pay interest semiannually on June 30 and December 31, 20Y8. The total interest expense related to these bonds for the year ended December 31, 20Y8, is

Answer 1

$8,000

Step-by-step explanation:

The computation of the total interest expense is shown below:

On June 30

= Face value × rate of interest × number of months ÷ (total number of months in a year)

= $100,000 × 8% × (6 months ÷ 12 months)

= $4,000

The 6 months is calculated from January 1 to June 30

On December 31

= Face value × rate of interest × number of months ÷ (total number of months in a year)

= $100,000 × 8% × (6 months ÷ 12 months)

= $4,000

The 6 months is calculated from June 30 to December 31

So, the total interest expense would be

= $4,000 + $4,000

= $8,000