On January 1, Year 1, The Hanover Corporation issued $52,750 of 9%, 5-year bonds at 99. Hanover uses the straight-line method of bond discount amortization. The interest payments are due on December 31 each year. How much interest expense will Hanover report on its income statement on December 31, Year 1? (Do not round intermediate calculations. Round your answer to nearest whole dollar.)

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The bond was issued at a discount because it was issued at 99% of its face value. The face value of the bond is $52,750, and the discount is 1% of that, or $527.50 ($52,750 * 1%). Over the 5-year life of the bond, this discount is amortized equally, which results in an annual amortization of $105.50 ($527.50 / 5). The annual interest payment is 9% of the face value, or $4,747.50 ($52,750 * 9%). The interest expense for the year includes both the cash interest payment and the amortization of the discount, totaling $4,853 ($4,747.50 + $105.50).

On January 1, Year 1, the Hanover Corporation Issued $52,750