Question

Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2017 income statement will total

Answer 1

$1,568,498

Step-by-step explanation:

First calculate the Amont of discount

Discount on the bond = Face value - Proceeds from the bond = $20,000,000 - $19,604,145 = $395,855

Now prepare the bond amortization

The Bond Amortization schedule is attached with this answer, please find it.

Now calculate the interest expense for 2017

Interest Expense 2017 = $784,165.80 + $784,332.43

Interest Expense 2017 = $1,568,498.23

Interest Expense 2017 = $1,568,498