Question

The bond premium or discount is being amortized at a rate of $10,000 every six months. After accruing interest at year end, the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Answer 1

C). $265,000

Step-by-step explanation:

Given that,

The price of issued bonds = $3,500,000

Contract rate of interest = 7%

Time period = 6 months

∴ Cash paid every six months = $3,500,000 x 7% x 6/12

= $122,500.

Amortization of discount every six months = $10,000

The amount of interest expense or total liabilities associated with the bond issue in the amount of:

$122,500 + $10,000 x 2 = $265,000