On July 1 the Stanley Corporation issues $2,000,000 of 10- year, 7.5% bonds dated July 1 at 91 when the market rate of interest is 9%. Stanley Corporation uses the straight- line method of amortization. Interest is paid each June 30 and December 31. The interest expense recognized for the first semiannual interest payment on December 31 is:

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The bonds were issued at 91, meaning they were sold for 91% of their face value, which is $1,820,000 ($2,000,000 x 0.91). The discount on the bonds is $180,000 ($2,000,000 - $1,820,000). Using the straight-line method, the discount is amortized equally over the 20 periods (10 years x 2). The semiannual amortization is $9,000 ($180,000 / 20). The cash interest payment is $75,000 ($2,000,000 x 7.5% x 1/2). Therefore, the interest expense is $84,000 ($75,000 + $9,000).

On July 1 the Stanley Corporation Issues $2,000,000 of 10-