$100,000 of five-year bonds are sold for $97,300 on the issue date. Interest of $4,000 is paid each year until the bonds are repaid. What is the total interest expense to the company for issuing these bonds?

Question

Quizplus · Accepted Answer

The total interest expense includes both the annual interest payments and the discount on the bonds. The annual interest payments total $20,000 ($4,000 x 5 years), and the discount on the bonds is $2,700 ($100,000 - $97,300). Therefore, the total interest expense is $22,700 ($20,000 + $2,700).

$100,000 of Five-Year Bonds Are Sold for $97,300 on the Issue