Question

cubs corporation issues $510,000 12%, 5-year bonds on january 1, 2023 for $469,000. interest is paid annually on january 1. if cubs corporation uses the straight line method of amortization of bond discount, the amount of interest expense recorded at december 31, 2023 would be

Answer 1

The interest expense recorded at December 31, 2023 is $53,000.

Step-by-step explanation:

When calculating the interest expense recorded at December 31, 2023, we need to consider the bond discount and the number of interest payments remaining.

In this case, Cubs Corporation issued $510,000 12% bonds at a discount of $41,000 ($510,000 - $469,000). The bond discount is spread over the life of the bond using the straight-line method. Since the bonds have a 5-year term, the annual amortization of the bond discount would be $41,000 / 5 = $8,200.

Therefore, the interest expense recorded at December 31, 2023 would be the annual interest payment of $510,000 * 12% = $61,200, minus the amortized bond discount of $8,200, which equals $53,000.