On January 1, 2009, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

Question

Quizplus · Accepted Answer

The total bond issue is $1,000 x 1,000 = $1,000,000.
Bond issue costs of $50,000 will be amortized at $5,000 per year ($50,000/10 years).
Interest expense for the year can be calculated as follows:
$1,000,000 x 8% = $80,000 per year
$50,000/10 years = $5,000 per year
Therefore, total interest expense for the year is $80,000 + $5,000 = $82,000.