On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2014?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of semiannual interest payments:

$4,000,000 x 10% x 6/12 = $200,000

Next, we need to calculate the bond discount:

$4,000,000 - $3,541,184 = $458,816

Since the bond discount is amortized over the life of the bond, we need to calculate the amount of bond discount amortization for the first six months:

$458,816 x 12% x 6/12 = $27,529

Finally, we can calculate the interest expense for the six months ended June 30, 2014:

$200,000 + $27,529 = $227,529

Therefore, the answer is choice C, $212,471.