On 1 January 2017,Carter Sales issued $27,000 in debentures for $33,800.They were eight year debentures with a stated rate of 14% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture premium.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar. )
A)$5335
B)$1480
C)$1890
D)$1465

Question

Quizplus · Accepted Answer

The premium on the debentures is $33,800 - $27,000 = $6,800, which will be amortized over the 16 interest periods (8 years x 2).

The annual interest payment is $27,000 x 14% = $3,780. Divided into two semiannual payments, Carter will pay $1,890 every six months.

For the first six months ending on 30 June 2017, interest expense is calculated as follows:

Premium amortization = $6,800 ÷ 16 periods = $425 
Interest expense = $1,890 - $425 = $1,465

Therefore, the correct answer is option D.

On 1 January 2017,Carter Sales Issued $27,000 in Debentures for $33,800.They