Roman Company issued $600,000 of 6%, 5-year bonds at 98, with interest paid annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

Question

Quizplus · Accepted Answer

The total interest cost includes both the cash interest paid and the amortization of the discount. The cash interest is $600,000 * 6% * 5 = $180,000. The discount on the bonds is $600,000 * 2% = $12,000. The total interest cost is $180,000 + $12,000 = $192,000.

Roman Company Issued $600,000 of 6%, 5-Year Bonds at 98