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 expense Winrow will show with relation to these bonds for the year ended December 31, 2017?
A)$64,000
B)$60,320
C)$68,600
D)$59,400

Question

Quizplus · Accepted Answer

The annual interest payment is $64,000 (8% of $800,000). The discount on bonds payable is $46,000 ($800,000 - $754,000), which is amortized over 10 years, resulting in $4,600 per year. Therefore, the interest expense is $64,000 + $4,600 = $68,600.

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