Question

A company issued 6-year, 8% bonds with a par value of $450,000. The market rate when the bonds were issued was 7.5%. The company received $454,500 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Answer 1

$17,667

Step-by-step explanation:

Premium on bonds

= $454,000 - $450,000

= $4,000

Cash interest paid

= $450,000 × 8% × 6/12

= $18,000

Amortization of premium for each period

= $4,000 ÷ 12

= $333

Therefore,

Interest expense

= $18,000 - $333

= $17,667