Question

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cassandra report

Answer 1

Cassandra Corp.

The amount of interest expense that Cassandra should report in its income statement for the current year ended December 31 is:

= $18,000.

Step-by-step explanation:

a) Data and Calculations:

Face value of bonds issued May 1 = $600,000

Proceeds from the bonds issue = 600,000

No discounts/ no premiums

Coupon and effective interest rate = 4%

Interest payment = Semiannually

Semiannual interest payment = $12,000 ($600,000 * 2%)

October 1:

Interest expense = $12,000

Interest payment = $12,000

December 31:

Interest expense = $12,000 * 3/6 = $6,000

Interest expense on December 31 = $18,000 ($12,000 + $6,000)