Question

On January 1, the Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. 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. $5,000 b. $5,200 c. $5,800 d. $5,400

Answer 1

d. $5,400

Step-by-step explanation:

The computation of the interest expense is shown below:

As

Interest Expense is

= $50,000 × 10%

= $5,000

And,

Amortization Expense is

= ($50,000 - $46,000) ÷ 10 years

= $400

So,

Total Bond Interest Expense is

= Interest expense + amortization expense

= $5,000 + $400

= $5,400

We simply added the interest expense and the amortization expense so that the total bond interest expense could come