Gammell Company issued $50,000 of 9% bonds with annual interest payments.The bonds mature in ten years.The bonds were issued at $48,000.Gammell Company uses the straight-line method of amortization.
- What is the amount of the annual interest expense?
A)$4,700.
B)$4,300.
C)$4,500.
D)$4,680.

Question

Quizplus · Accepted Answer

The annual interest payment is $4,500 ($50,000 x 9%). The discount of $2,000 ($50,000 - $48,000) is amortized over 10 years, adding $200 ($2,000/10) to the annual interest expense, making it $4,700 ($4,500 + $200).

Gammell Company Issued $50,000 of 9% Bonds with Annual Interest