Hooke Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2014. The bonds had a face value of $400,000, pay interest annually on June 30 and December 31, and have a call price of 101. Hooke uses the straight-line method of amortization. What is the amount of interest expense Hooke will show with relation to these bonds for the year ended December 31, 2015?

Question

Quizplus · Accepted Answer

The annual interest payment is $32,000 ($400,000 * 8%). The bond discount is $23,000 ($400,000 - $377,000), amortized over 10 years, resulting in $2,300 per year. Therefore, the interest expense for 2015 is $32,000 + $2,300 = $34,300.

Hooke Company Received Proceeds of $377,000 on 10-Year, 8% Bonds