Question

On January​ 1, Year​ 1, assume Smart Touch Learning issued​ 10-year, $ 110000 bonds at 106​% with an interest rate of 6​% paid​ semi-annually. Using the​ straight-line amortization​ method, what is the amount of interest expense recorded each interest​ period?

Answer 1

Using the straight-line amortization method, the amount of interest expense recorded each interest period for the 10-year, $110,000 bonds with a 6% interest rate paid semi-annually would be $165.

Step-by-step explanation:

Using the straight-line amortization method, the amount of interest expense recorded each interest period can be calculated as follows:

1. Step 1: Determine the total interest paid semi-annually. Since the bond has a face value of $110,000 and an interest rate of 6%, the total interest paid each year would be $110,000 * 6% = $6,600. Divide this amount by 2 to get the semi-annual interest payment, which is $6,600 / 2 = $3,300.
2. Step 2: Calculate the total number of interest periods. Since the bond has a maturity of 10 years and interest is paid semi-annually, there are a total of 10 * 2 = 20 interest periods.
3. Step 3: Divide the total interest paid semi-annually by the number of interest periods to find the amount of interest expense recorded each interest period. In this case, $3,300 / 20 = $165 would be the amount of interest expense recorded each interest period.

Therefore, the amount of interest expense recorded each interest period using the straight-line amortization method is $165.