Question

A company issued $120,000 5-year, 7.50% bonds and received $121,365 in cash. The market rate of interest when the bonds were issued was 7.00%. What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization?

Answer 1

$8,496

Step-by-step explanation:

The computation of the amount of interest expense for first annual interest period is shown below:

Interest expense is

= Issued price × Market rate of interest

= $121,365 × 7%

= $8,496

By multiplying the issued price of the bond with the market rate of interest we can get the amount of interest expense and the same is shown above