209. A corporation issues $500,000, 8%, 10-year bonds on January 1, 2018 for $479,000. Interest is paid annually on January 1. If the corporation uses the straight- line method of amortization of bond discount, the amount of bond interest expense to be recognized on December 31, 2018 is A) $40,420. B) $40,000. C) $42,100. D) $37,900.

Question

Quizplus · Accepted Answer

The bond discount is $21,000 ($500,000 - $479,000). Using the straight-line method, the annual amortization of the discount is $2,100 ($21,000 / 10 years). The annual interest payment is $40,000 (8% of $500,000). Therefore, the bond interest expense is $42,100 ($40,000 + $2,100).