Winrow Company received proceeds of $565,500 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $600,000, 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, 2014?
A) $48,000
B) $45,240
C) $51,450
D) $44,550

Question

Quizplus · Accepted Answer

The annual interest payment is $48,000 (8% of $600,000). The discount on the bonds is $34,500 ($600,000 - $565,500), which is amortized over 10 years, resulting in an annual amortization of $3,450. Therefore, the interest expense for 2014 is $48,000 + $3,450 = $51,450.

Winrow Company Received Proceeds of $565,500 on 10-Year, 8% Bonds