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 company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is
$25,000.

Question

Quizplus · Accepted Answer

The interest expense includes both the cash interest payment and the amortization of the bond discount. The cash interest payment is $25,000 ($500,000 x 10% x 1/2 year), but the discount amortization must also be added to this amount to get the total interest expense.

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