Question

A company issues $15200000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14939182. Using effective-interest amortization, how much interest expense will be recognized in 2017

Answer 1

$1,494,026.16

Step-by-step explanation:

journal entry to record issuance:

January 1, 2017, bonds issued at discount

Dr Cash 14,939,182

Dr Discount on bonds payable 260,818

Cr Bonds payable 15,200,000

the first coupon payment:

amortization of bond discount = (14,939,182 x 0.1/2) - 744,800 = 2,159.10

Dr Interest expense 746,959.10

Cr Cash 744,800

Cr Discount on bonds payable 2,159.10

the second coupon payment:

amortization of bond discount = (14,941,341.10 x 0.1/2) - 744,800 = 2,267,06

Dr Interest expense 747,067.06

Cr Cash 744,800

Cr Discount on bonds payable 2,267,06

total interest expense for 2017 = $746,959.10 + $747,067.06 = $1,494,026.16