Question

At the beginning of 2015, Churchill Corp. issued 10% bonds with a face value of $1,200,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,111,680 to yield 12%. Since Churchill uses a calendar-year reporting period and the effective interest method of amortization, what interest expense should the corporation report for 2015

Answer 1

$133,803.65

Step-by-step explanation:

discount on bonds payable = $88,320

first coupon payment

amortization of discount = ($1,111,680 x 6%) - $60,000 = $6,700.80

total interest expense for first coupon payment = $66,700.80

second coupon payment

amortization of discount = ($1,118,380.80 x 6%) - $60,000 = $7,102.85

total interest expense for second coupon payment = $67,102.85

total interest expense for the year = $133,803.65