Final answer:
The interest expense recorded in Hummbug Corporation's financial statements for the year ended January 31, 2019 would be $2,158.05, which accounts for the coupon payment adjusted by the amortized premium using the straight-line method.
Step-by-step explanation:
The interest expense for Hummbug Corporation's bonds for the year ended January 31, 2019, can be calculated by first determining the amount of interest paid and then accounting for the amortization of the bond premium using the straight-line method. They issued $100,000 at a 5% coupon rate when the market rate was 4%, resulting in a bond sold at a premium. Since the bonds are 20-year bonds with semi-annual payments, the total annual coupon payment would be $100,000 x 5% = $5,000 paid in two installments of $2,500 each (every six months).
The bond premium is the difference between the issue price of $113,678 and the face value of $100,000, which is $13,678. The annual amortization of the premium would be $13,678 divided by 20 years, which equals $683.90. However, since there are two interest periods in the year and we ought to amortize for half the year (since the bond was issued on July 31, 2018, and the company's year-end is January 31, 2019), the amortization to interest expense for one period will be $683.90 / 2 = $341.95.
Therefore, the premium amortized for the semi-annual interest would reduce the interest expense recorded. The adjusted interest expense for each semi-annual period is $2,500 (coupon payment) - $341.95 (amortized premium) = $2,158.05. Since only one interest period falls in the financial year ended January 31, 2019, this is the amount that will be recorded as interest expense for that year.