Exhibit 14-7
Magenta Corporation issued $500,000 of its 6%, 10-year bonds, dated January 1, 2016, at face value plus accrued interest on September 1, 2016. Interest is paid on June 30 and December 31. Magenta uses the most common method to record the sale of the bonds between interest payment periods.
-Refer to Exhibit 14-7. The amount of bond interest expense reported on the year-end 2016 income statement would be

Question

Quizplus · Accepted Answer

The bonds were issued on September 1, 2016, which is 214 days into the year. Interest is paid on June 30 and December 31, so the interest expense for the year 2016 is for 214 days. The annual interest expense is $500,000 x 6% = $30,000. The interest expense for 214 days is $30,000 x 214/366 = $10,000.

Exhibit 14-7 Magenta Corporation Issued $500,000 of Its 6%, 10-Year Bonds, Dated