A company issued seven-year,8% bonds with a par value of $200,000.The market rate when the bonds were issued was 5.5%.The company received $203,010 cash for the bonds.Using the straight-line method,the amount of recorded interest expense for the first semiannual interest period is:
A)$8,000
B)$8,215
C)$7,785
D)$16,000
E)$4,990

Question

Quizplus · Accepted Answer

The interest expense is calculated by taking the cash interest payment minus the amortization of the premium. The cash interest payment is $8,000 ($200,000 * 8% / 2). The premium is $3,010, amortized over 14 periods (7 years * 2), which is $215 per period. Therefore, the interest expense is $8,000 - $215 = $7,785.

A Company Issued Seven-Year,8% Bonds with a Par Value of $200,000.The