Tobo Corp. issued $500,000 of 5%, 5-year bonds at 102 on January 1, 2012. The straight-line method of amortization is used and the bonds pay interest annually on January 1. The amount of bond interest expense that Tobo should report on its 2012 income statement is:

Question

Quizplus · Accepted Answer

The bond premium is $10,000 ($500,000 x 2%). Amortizing this over 5 years gives $2,000 per year. The annual interest payment is $25,000 ($500,000 x 5%). Therefore, the bond interest expense is $25,000 - $2,000 = $23,000.

Tobo Corp Issued $500,000 of 5%, 5-Year Bonds at 102 on on January