221. Terrance Company issued $1,000,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?

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Quizplus · Accepted Answer

The bonds were issued at 106, meaning they were sold for $1,060,000. The premium of $60,000 ($1,060,000 - $1,000,000) is amortized over 5 years, or $12,000 per year. The annual interest payment is 8% of $1,000,000, which is $80,000. Therefore, the bond interest expense is $80,000 - $12,000 = $68,000.