On January 1, 2015, Chain, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.The interest expense on the bonds at June 30, 2015 is

Question

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Step 1: Determine the amount of interest paid on June 30, 2015
Interest rate = 10% x $400,000 = $40,000 per year
Interest for 6 months (January 1 - June 30, 2015) = $40,000 x 6/12 = $20,000

Step 2: Calculate the amount of interest expense using the effective interest method (interest is based on the carrying value of the bond)
Carrying value on January 1, 2015 = $354,200
Interest for 6 months = $20,000
Interest expense = $354,200 x 12% x 6/12 = $21,252

Therefore, the answer is C) $21,252.