Question

Franklin corporation issues $50,000, 10%, five-year bonds on january 1 for $52,100. interest is paid semiannually on january 1 and july 1. if franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on july 1 is

Answer 1

Amount of interest expenses to be recognized on July 1 = $50,000 x 10% x 6/12 = $2,500

Step-by-step explanation:

Answer 2

$2,290

Step-by-step explanation:

Since Franklin sold their bonds at a premium (higher than face value), they must discount the premium from their interest expense.

total interest expense = coupon paid - amortization of bond premium

• coupon = $50,000 x 10% x 1/2 = $2,500
• amortization of bond premium = ($52,100 - $50,000) / 10 periods = $2,100 / 10 = $210

total interest expense = $2,500 - $210 = $2,290