On November 1,2019,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2019,and interest is payable each November 1 and May 1.Davis uses the straight-line method of amortization.
- Which of the following is incorrect with regard to the Davis bonds when the straight-line method of amortization is utilized?

Question

Quizplus · Accepted Answer

When the straight-line method of amortization is used, the semiannual interest expense is the same amount for each period. In this case, it would be $1,050 ($30,000 bond x 7% coupon rate / 2 periods per year = $1,050). Since the semiannual cash interest payment is $1,050 ($30,000 bond x 7% coupon rate x 6/12 period = $1,050), the semiannual interest expense is equal to the semiannual cash interest payment, not less than it. Therefore, choice D is incorrect. Choices A, B, and C are all correct.

On November 1,2019,Davis Company Issued $30,000,ten-Year,7% Bonds for $29,100