Question

Ivanhoe Company issued $1520000 of 6%, 5-year bonds at 95, which pay interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds?a. $636,000.

b. $632,400.
c. $628,800.
d. $639,600.

Answer 1

the journal entry to record bond issuance:

Dr Cash 1,444,000

Dr Discount on bonds payable 76,000

Cr Bonds payable 1,520,000

amortization of discount on bonds payable = $76,000 / 5 = $15,000

coupon payment = $91,200

total interest expense per year = $106,200

total interest expense for the 5 year period = $106,200 x 5 years = $531,000