Kinizi Incorporated sold a $10,000, 6%, 5-year bond for $9,189 to yield 8%.Interest is paid semi-annually.The company uses the effective interest method to amortize all bond premiums and discounts.What will be the interest expense on the first payment date?

Question

Quizplus · Accepted Answer

To calculate the interest expense on the first payment date, we need to determine the semi-annual interest payment and the amortization of the bond discount.
Semi-annual interest payment = $10,000 x 6% x 0.5 = $300
Discount amortization = ($10,000 - $9,189) / 10 = $81.10
Interest expense on the first payment date = $300 + $81.10 = $381.10, which is closest to option B, $368.

Kinizi Incorporated Sold a $10,000, 6%, 5-Year Bond for $9,189