Foley Company issued $800,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

Question

Quizplus · Accepted Answer

The total interest cost includes both the cash interest paid and the amortization of the discount. The cash interest is $800,000 * 6% * 5 years = $240,000. The discount on the bonds is $800,000 * 2% = $16,000. The total interest cost is $240,000 + $16,000 = $256,000.

Foley Company Issued $800,000 of 6%, 5-Year Bonds at 98