Winrow Company received proceeds of $754,000 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $800,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. What is the amount of interest Winrow must pay the bondholders in 2016?
A)$60,320
B)$64,000
C)$68,600
D)$59,400

Question

Quizplus · Accepted Answer

The annual interest payment is $800,000 x 8% = $64,000.
Winrow uses the straight-line method of amortization, which means that the premium of $46,000 ($800,000 - $754,000) will be amortized equally over the life of the bond. 
The annual amortization is $46,000 / 10 years = $4,600.
Therefore, the interest expense for 2016 is $64,000 - $4,600 = $59,400. 
Thus, the answer is B) $59,400.

Winrow Company Received Proceeds of $754,000 on 10-Year, 8% Bonds