The following information applies to both questions 77 and 78.
On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.
-Bond interest expense reported on the December 31, 2014 income statement of Macklin Corporation would be
A) $46,000
B) $50,000
C) $54,000
D) $92,000
The following information applies to both questions 79 and 80.
On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

Question

Quizplus · Accepted Answer

The bond interest expense for Macklin Corporation includes the interest payment plus the amortization of the bond premium. The interest payment for three months (October 1 to December 31) is calculated as $4,000,000 * 5% * 3/12 = $50,000. The bond was issued at 104, meaning there's a $160,000 premium ($4,000,000 * 4%). This premium is amortized over the life of the bond (10 years), resulting in an annual amortization of $16,000, or $4,000 for three months ($16,000 * 3/12). Therefore, the bond interest expense is $50,000 (interest payment) - $4,000 (amortization of premium) = $46,000.

The Following Information Applies to Both Questions 77 and 78