At the beginning of 2014, Winston Corporation issued 10% bonds with a face value of $2,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,852,800 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2014? (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The interest expense for the first period is calculated as $1,852,800 * 6% = $111,168. For the second period, the carrying amount is adjusted by adding the amortization of the discount, resulting in a new carrying amount of $1,863,968. The interest expense for the second period is $1,863,968 * 6% = $111,838. The total interest expense for 2014 is $111,168 + $111,838 = $223,006.

At the Beginning of 2014, Winston Corporation Issued 10% Bonds