Question

On January 1, the Elias Corporation issued 10% bonds with a face value of $116,000. The bonds are sold for $113,680. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 of the first year is.a. $485 b. $2,910 c. $5,820 d. $6,111

Answer 1

The total interest expense on the bond

= 10% x $116,000

=$11,600

Semi-annual interest expense

= $11,600/2

= $5,800

None of the options is correct.

Step-by-step explanation:

In this case, there is need to calculate the total annual interest expense on the bond, which is 10% of the face value. Then, the total annual interest expense will be divided by 2 since the bond pays semi-annual interest.