A company issued 25-year,8% bonds with a par value of $900,000.The company received $1,000,000 cash for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:
A)$36,000
B)$34,000
C)$38,000
D)$40,000
E)$32,000

Question

Quizplus · Accepted Answer

The first step is to determine the total amount of interest that will be paid over the life of the bond.

Total interest = par value x annual interest rate x time

Time is in years, so it needs to be divided by the number of periods per year. In this case, there are two semiannual periods per year.

Total interest = $900,000 x 8% x (25/2) = $900,000 x 0.04 x 25 = $900,000

The total interest paid over the life of the bond is $900,000.

Next, we need to calculate the semiannual interest expense.

Semiannual interest expense = total interest / number of semiannual periods

Number of semiannual periods = number of years x 2

Number of semiannual periods = 25 x 2 = 50

Semiannual interest expense = $900,000 / 50 = $18,000

Therefore, the amount of interest expense for the first semiannual period is $18,000 x 2 = $34,000.

The correct answer is B.

A Company Issued 25-Year,8% Bonds with a Par Value of $900,000.The