Sparks Company received proceeds of $634,500 on 10-year, 8% bonds issued on January 1, 2019.The bonds had a face value of $600,000, pay interest annually on December 31, and have a call price of 102.Sparks uses the straight-line method of amortization.What is the amount of interest expense Sparks will show with relation to these bonds for the year ended December 31, 2020?
A)$48,000
B)$50,760
C)$44,550
D)$37,650

Question

Quizplus · Accepted Answer

The interest expense is calculated by adding the annual interest payment to the amortization of the bond premium. The annual interest payment is 8% of the face value ($600,000), which is $48,000. The bond premium is $34,500 ($634,500 - $600,000) and is amortized over 10 years, resulting in an annual amortization of $3,450. Therefore, the interest expense is $48,000 - $3,450 = $44,550.

Sparks Company Received Proceeds of $634,500 on 10-Year, 8% Bonds