Question

Cramer Company sold five-year, 6% bonds on October 1, 2018. The face amount of the bonds was $155,000, while the issue price was $160,000. Interest is payable on April 1 of each year. The fiscal year of Cramer Company ends on December 31. How much interest expense will Cramer Company report in its December 31, 2018, income statement (assume straight-line amortization)

Answer 1

$2,209

Step-by-step explanation:

Calculation for How much interest expense will Cramer Company report in its December 31, 2016, income statement (assume straight-line amortization)

First step is to calculate cash interest

Cash interest =$155,000 × 6% × 3/12

Cash interest=$2,325

Second step is to calculate Premium amortization

Premium amortization= $2,325 × 1/5 × 3/12

Premium amortization=116.25

Now let calculate Interest expense

Interest expense=$2,325-$116.25

Interest expense=$2,208.75

Interest expense= $2,209 (approximately)

Therefore How much interest expense will Cramer Company report in its December 31, 2016, income statement (assume straight-line amortization) is $2,209