Davis Corporation sells $200,000,12%,10-year bonds for 103 on January 1.Compute the semiannual interest expense recorded on July 1 using the interest method.The market rate is 8%.

Question

Quizplus · Accepted Answer

The semiannual interest expense using the interest method is calculated by multiplying the carrying amount of the bonds by the market rate divided by 2 (since it's semiannual). The bonds are sold at 103, so the carrying amount is $206,000 ($200,000 * 1.03). The market rate is 8%, so the semiannual rate is 4%. Therefore, the interest expense is $206,000 * 4% = $8,240.

Davis Corporation Sells $200,000,12%,10-Year Bonds for 103 on January 1