On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used.
- The interest expense for the six-month period ending December 31,2019 is closest to:

Question

Quizplus · Accepted Answer

The correct answer is B. The interest expense for the six-month period ending December 31, 2019 is closest to $20,491. This is calculated as follows:Interest expense = Bond face value x Market interest rate x Time= $400,000 x 10% x 6/12= $20,000Amortization of bond discount = (Issue price - Bond face value) x Effective interest rate x Time= ($413,153 - $400,000) x 10% x 6/12= $491Total interest expense = Interest expense + Amortization of bond discount= $20,000 + $491= $20,491

On January 1,2019,a Company Issued $400,000 of 10-Year,12% Bonds