On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of
$473,845. Interest is payable each June 30 and December 31. The total interest expense on the bond over its eight-year life is $400,000.

Question

Quizplus · Accepted Answer

The total interest expense is the sum of the cash interest payments and the discount amortization. The cash interest payments over 8 years are $400,000, but the discount of $26,155 ($500,000 - $473,845) also needs to be amortized, increasing the total interest expense.

On January 1, a Company Issued a $500,000, 10%, 8-Year