Question

On January 1 of the current year, the Barton Corporation issued 8% bonds with a face value of $96,000. The bonds are sold for $91, 200. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton Corporation records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is a. $8, 640 b. $9, 120 c. $3, 840 d. $480

Answer 1

option (a) $8,640

Step-by-step explanation:

Data provided in the question:

Face value = $96,000

Interest = 8%

Selling value = $91,200

Maturity period = 5 years

Now,

Bond interest expense for the year ended December 31

= Interest on bond + Annual Amortization

= Face value × interest + [ ( Face value - Selling value ) ÷ Maturity period ]

= $96,000 × 8% + [ ( $96,000 - $91,200 ) ÷ 5 ]

= $7,680 + $960

= $8,640

Hence the answer is option (a) $8,640