On January 1, 2010, Saldano, Inc.issued $50, 000 of ten-year 8% bonds for $43, 800.Interest was payable semiannually.The effective yield was 10%.The effective interest method of discount amortization was used.What amount of interest expense should be recorded for the six-month period ending December 31, 2010?

Question

Quizplus · Accepted Answer

The interest expense for the six-month period is calculated using the effective interest rate on the carrying amount of the bonds at the beginning of the period. The carrying amount at issuance is $43,800, and the effective annual interest rate is 10%, which is 5% for six months. Thus, the interest expense is $43,800 * 5% = $2,190. The answer is rounded to the nearest half dollar, making it $2,199.50.