On July 1, 2014, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2014, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. How much is the semi-annual interest expense?

Question

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The semi-annual interest expense can be calculated as follows: 
Annual interest = $300,000 x 7% = $21,000 
Semi-annual interest = $21,000 / 2 = $10,500 
Using the straight-line method, the bond discount of $3,000 ($303,000 - $300,000) is amortized evenly over the 20 semi-annual periods. 
Semi-annual amortization = $3,000 / 20 = $150 
Therefore, the semi-annual interest expense is the sum of the semi-annual interest payment and the semi-annual amortization: 
Semi-annual interest expense = $10,500 + $150 = $10,650 
Round to the nearest dollar, the answer is C) $10,350.