A corporation issues $500000 8% 5-year bonds on January 1 2017 for $479000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount the amount of interest expense to be recognized on December 31 2017 is

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The total bond discount is $500,000 - $479,000 = $21,000. Using the straight-line method, this discount is amortized evenly over the life of the bond, which is 5 years. Annual amortization amount = $21,000 / 5 = $4,200. The annual cash interest payment is $500,000 * 8% = $40,000. Therefore, the interest expense recognized in the first year is $40,000 (cash interest) + $4,200 (amortization of discount) = $44,200.

A Corporation Issues $500000 8% 5-Year Bonds on January 1