Cubs Corporation issues $480,000, 10%, 5-year bonds on January 1, 2014 for $469,000. Interest is paid annually on January 1. If Cubs Corporation uses the straight-line method of amortization of bond discount, the amount of interest expense recorded at December 31, 2014 would be:

Question

Quizplus · Accepted Answer

The bond discount is $480,000 - $469,000 = $11,000. Over 5 years, the annual amortization is $11,000 / 5 = $2,200. The annual interest payment is $480,000 * 10% = $48,000. Therefore, the interest expense is $48,000 + $2,200 = $50,200.

Cubs Corporation Issues $480,000, 10%, 5-Year Bonds on January 1