Question

on march 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face amount of $3,000,000. interest of 6 percent per annum is due semiannually on march 1 and september 1. the first payment of $150,000 for redemption of principal is due on march 1, 2020. fiscal year-end occurs on december 31. what is the interest expense for the fiscal year ending december 31, 2019? multiple choice $135,000. $150,000. $90,000. none of the options are correct.

Answer 1

Answer: $150,000.

Explanation:

2019 Bond Issuance Period

= March 2, 2019 to December 31, 2019

= 10 months

Interest rate = 6% per annum

Value of outstanding bonds = $3,000,000

Interest expense

= bond issue amount * interest rate * bond issue period in 2019

= $3,000,000 * 6% * 10/12

= $150,000