Question

On June 30, 2024, L. N. Bean issued $16 million of its 8% bonds for $14 million. The bonds were priced to yield 10%. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, how much bond interest expense should the company report for the 6 months ended December 31, 2024

Answer 1

$700,000

Step-by-step explanation:

Calculation to determine how much bond interest expense should the company report for the 6 months ended December 31, 2024

Using this formula

Interest expense for the 6 months ended December 31, 2024 = Carrying value * Effective interest rate/2

Let plug in the formula

Interest expense for the 6 months ended December 31, 2024= $14,000,000 * 10% / 2

Interest expense for the 6 months ended December 31, 2024=$14,000,000*5%/2

Interest expense for the 6 months ended December 31, 2024= $700,000

Therefore the amount of bond interest expense that the company should report for the 6 months ended December 31, 2024 is $700,000