Question

On June 1 of the current year, Cross Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cross report?

a. $14,000.
b. $6,000.
c. $12,000.
d. $8,000.

Answer 1

Answer: amount of interest expense Cross should report =a. $14,000.

Step-by-step explanation:

interest expense = Principal( Face value) x Rate x period( Time)

Carrying value of the bond ( face value ) =$300,000

Rate= 8%

year ended on December, therefore The interest expense recorded would be for four months ( From June 1 to December 31 )

Therefore the Interest Expense = $300,000 x 8% x 7/12

= $300,000 x 0.08 x 7/12

= $168,000/12

$14,000

The amount of interest expense Cross should report at the current year end is $14,000