Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2011 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The June 30, 2006 entry will include:

Question

Quizplus · Accepted Answer

The interest expense is calculated using the effective interest rate method, which involves multiplying the carrying amount of the bond by the market interest rate (10%). The carrying amount is $107,732, so the interest expense is $107,732 * 10% / 2 = $5,386.60.

Duncan Industries Sold $100,000 of 12 Percent Bonds on January