Scribner Company issued $800,000 of 8%, 5-year bonds at 106.Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?
A)$64,000
B)$73,600
C)$54,400
D)$9,600

Question

Quizplus · Accepted Answer

The bond interest expense is calculated by taking the annual interest payment minus the amortization of the bond premium. The annual interest payment is $800,000 * 8% = $64,000. The premium is $800,000 * 6% = $48,000, which is amortized over 5 years, giving $48,000 / 5 = $9,600 per year. Therefore, the bond interest expense is $64,000 - $9,600 = $54,400.

Scribner Company Issued $800,000 of 8%, 5-Year Bonds at 106