Question

On January 1, the Elias Corporation issued 10% bonds with a face value of $56,000. The bonds are sold for $60,000. 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 actual interest expense reported in the income statement for the year ended December 31 of the first year is

Answer 1

$6,000

Step-by-step explanation:

According to the scenario, computation of the given data are as follow:-

We can calculate the Interest Expenses of Total Bond by using following formula:-

Interest Expenses = Face Value × Rate of Bonds

= $56,000 × 10%

= $5,600

Amortization Expenses = (Bond Issue Price - Bond Face Value) ÷ Bond Term

= ($60,000 - $56,000) ÷ 10

= $400

Interest Expenses of Total Bond = Interest Expenses + Amortization Expenses

= $5,600 + $400

= $6,000