On January 1 of the current year, Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is
A) $10,900
B) $18,200
C) $21,800
D) $29,000

Question

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Discount = Face Value - Selling Price
Discount = $200,000 - $191,000
Discount = $9,000

Amortization per year = Discount / Number of Years
Amortization per year = $9,000 / 5
Amortization per year = $1,800

Since interest is paid semiannually, the bond interest expense for the year ended December 31 is calculated as follows:

First six months:

Bond interest expense = Face Value x Annual Interest Rate x Time
Bond interest expense = $200,000 x 10% x 6/12
Bond interest expense = $10,000

Less: Bond amortization for the first six months
Bond amortization = Amortization per year / 2
Bond amortization = $1,800 / 2
Bond amortization = $900

Net bond interest expense for the first six months = $10,000 - $900
Net bond interest expense for the first six months = $9,100

Last six months:

Bond interest expense = Face Value x Annual Interest Rate x Time
Bond interest expense = $200,000 x 10% x 6/12
Bond interest expense = $10,000

Less: Bond amortization for the last six months
Bond amortization = Amortization per year / 2
Bond amortization = $1,800 / 2
Bond amortization = $900

Net bond interest expense for the last six months = $10,000 - $900
Net bond interest expense for the last six months = $9,100

Total bond interest expense for the year ended December 31 = Net bond interest expense for the first six months + Net bond interest expense for the last six months
Total bond interest expense for the year ended December 31 = $9,100 + $9,100
Total bond interest expense for the year ended December 31 = $21,800

On January 1 of the Current Year, Barton Corporation Issued