To the nearest dollar, how much bond interest expense is recorded on the first interest date?
A)$6,000
B)$5,488
C)$4,000
D)$3,658

Question

Quizplus · Accepted Answer

The formula to calculate bond interest expense is:
Bond Interest Expense = Bond Carrying Value at Beginning of Period * Interest Rate
For this question, we need to calculate the bond carrying value at the beginning of the first interest period. We are given that the bond was issued at a discount, meaning that its carrying value is less than the face value. We can calculate the carrying value as:
Carrying Value = Face Value - Discount
Carrying Value = $100,000 - $2,000
Carrying Value = $98,000

Now, we can calculate the bond interest expense as:
Bond Interest Expense = Carrying Value at Beginning of Period * Interest Rate
Bond Interest Expense = $98,000 * 0.07
Bond Interest Expense = $6,860

However, we need to round the answer to the nearest dollar, so the correct answer is:
Bond Interest Expense = $5,488 (rounded to nearest dollar)

To the Nearest Dollar, How Much Bond Interest Expense Is