219. Roman Company issued $1,000,000 of 6%, 5-year bonds at 98, with interest paid annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

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Quizplus · Accepted Answer

The total interest cost includes both the cash interest paid and the amortization of the discount. The cash interest is $1,000,000 * 6% * 5 = $300,000. The discount on the bonds is $1,000,000 * 2% = $20,000. The total interest cost is $300,000 + $20,000 = $320,000.