On January 1, 2012, $1,000,000, 5-year, 10% bonds, are issued for $926,400. The market interest rate is 12%. Interest is paid semi-annually on January 1 and July 1. The discount amortized on July 1, 2012 is
A)$60,000.
B)$55,584.
C)$6,000.
D)$5,584.

Question

Quizplus · Accepted Answer

The discount amortized is calculated using the effective interest method. The interest expense for the period is $926,400 * 6% = $55,584. The cash interest paid is $1,000,000 * 5% = $50,000. The discount amortized is $55,584 - $50,000 = $5,584.

On January 1, 2012, $1,000,000, 5-Year, 10% Bonds, Are Issued