At the beginning of 2010, Winston Corporation issued 10% bonds with a face value of $600,000.These bonds mature in five years, and interest is paid semiannually on June 30 and December 31.The bonds were sold for $555,840 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 2010? (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The interest expense for 2010 is calculated using the effective interest rate of 12% on the carrying amount of the bonds. For the first period, the interest expense is $555,840 * 6% = $33,350. For the second period, the carrying amount is adjusted by the amortization of the discount, and the interest expense is recalculated. The total interest expense for 2010 is approximately $66,901.

At the Beginning of 2010, Winston Corporation Issued 10% Bonds