Evans Corporation sells $400,000, 12%, 10-year bonds for 98 on January 1. Compute the semiannual interest expense recorded on July 1 using the interest method. The market rate is 15%.

Question

Quizplus · Accepted Answer

The semiannual interest expense using the interest method is calculated by applying the market interest rate (15% annually or 7.5% semiannually) to the carrying amount of the bonds at the beginning of the period. The bonds were sold for 98% of their face value, so the initial carrying amount is $400,000 * 98% = $392,000. The semiannual interest expense is $392,000 * 7.5% = $29,400.

Evans Corporation Sells $400,000, 12%, 10-Year Bonds for 98 on January