Final answer:
The correct answer is c. $10,840.The bond interest expense on July 1, 2017, for Amy Corporation is calculated by adding the semiannual interest payment of $10,000 to the semiannual amortization of the discount, which is $840, resulting in a total of $10,840.
Step-by-step explanation:
The question is about how to calculate the bond interest expense on July 1, 2017, for a corporation that issued bonds at a discount using the straight line method of amortization. The bonds issued by Amy Corporation are $200,000 with a stated interest rate of 10%, due in 5 years, and they were sold for $191,600.
Given that the bonds pay interest semiannually, the semiannual interest payment equals 10% of $200,000 divided by 2, which is $10,000. The total discount on the bonds is $200,000 (face value) - $191,600 (issue price) = $8,400. This discount is amortized over the life of the bond, which is 5 years or 10 semiannual periods.
For each semiannual period, the amortization amount is $8,400 / 10 = $840. Therefore, the bond interest expense recognized on July 1, 2017, includes the actual cash payment of interest plus the amortization of the discount, giving a total of $10,000 (interest payment) + $840 (amortization of discount) = $10,840. Hence, the correct answer is c. $10,840.