Jones Company issued bonds with a $200,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7½% stated rate of interest that is payable in cash on December 31^st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information:The amount of interest expense shown on Jones's December 31, Year 1 income statement would be: A) $16,200. B) $21,000. C) $15,000. D) $13,800.

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Quizplus · Accepted Answer

The bond was issued at 97, meaning it was issued at a 3% discount ($200,000 * 3% = $6,000 discount). The annual interest payment is $200,000 * 7.5% = $15,000. The discount amortization per year is $6,000 / 5 years = $1,200. Therefore, the interest expense is the cash interest payment plus the discount amortization: $15,000 + $1,200 = $16,200.

Jones Company Issued Bonds with a $200,000 Face Value on January