Question

Crane Company received proceeds of $799000 on 10-year, 9% bonds issued on January 1, 2019. The bonds had a face value of $848000, pay interest annually on December 31, and have a call price of 105. Crane uses the straight-line method of amortization. What is the amount of interest expense Crane will show with relation to these bonds for the year ended December 31, 2020

Answer 1

The amount of interest expense Crane will show with relation to these bonds for the year ended December 31, 2020 is $81,220.

Step-by-step explanation:

This can be calculated as follows:

Annual amortization = (Face value of the bonds - Proceeds from the bonds) / Tenure of the bonds = ($848000 - $799000) / 10 = $49,000 / 10 = $4,900

Interest expenses for 2020 = (Face value of the bonds * Annual interest rate) + Annual amortization = ($848000 * 9%) + $4,900 = $76,320 + $4,900 = $81,220

Therefore, the amount of interest expense Crane will show with relation to these bonds for the year ended December 31, 2020 is $81,220.