Exhibit 14-13 On January 1, 2010, Marty Co.issued $80, 000 of serial bonds that pay 9% interest annually.Each December 31, $16, 000 of the bonds comes due.The bonds were issued for $84, 800.
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Refer to Exhibit 14-13.If the bonds outstanding method is in use, what would be the total amount of interest expense for 2012?

Question

Quizplus · Accepted Answer

The total amount of interest expense for 2012 would be $4,320. This is because the bonds outstanding method is used, which means that the interest expense is calculated based on the number of bonds outstanding at the end of the period. On December 31, 2012, there are $64,000 of bonds outstanding, and the annual interest rate is 9%. Therefore, the interest expense for 2012 is $64,000 x 9% = $5,760. However, since $16,000 of the bonds come due on December 31, 2012, the interest expense for 2012 is reduced by the amount of interest that has accrued on these bonds since the last interest payment date. The interest that has accrued on these bonds since the last interest payment date is $16,000 x 9% x 1/12 = $120. Therefore, the total amount of interest expense for 2012 is $5,760 - $120 = $4,320.

Exhibit 14-13 on January 1, 2010, Marty Co