On July 1, 2017, Brownlee Corporation issues $1,400,000 of 10-year, 6% bonds dated July 1, 2017 at 91. Brownlee uses the straight-line method of amortization. Interest is paid each July 1 and January 1. Brownlee Corporation's fiscal year end is June 30. The interest expense recognized for the first semiannual interest payment on January 1, 2018 is:
A)35,700.
B)$42,000.
C)$48,300.
D)$84,000.

Question

Quizplus · Accepted Answer

The bond discount is $1,400,000 x (100% - 91%) = $126,000. Over 10 years, the annual amortization is $12,600, and for 6 months, it's $6,300. The cash interest payment is $1,400,000 x 6% x 1/2 = $42,000. Therefore, the interest expense is $42,000 + $6,300 = $48,300.

On July 1, 2017, Brownlee Corporation Issues $1,400,000 of 10-Year