On January 1, Year 1, Victor Company issued bonds with a $650,000 face value, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds sold at 95. Interest is payable in cash on December 31 of each year. Victor uses the straight-line method to amortize bond discounts and premiums. What is the amount of interest expense appearing on the income statement for the year ending December 31, Year 3?

Question

Quizplus · Accepted Answer

The annual interest payment is $39,000 ($650,000 x 6%). The bond discount is $32,500 ($650,000 x 5%), amortized over 5 years, resulting in $6,500 per year. Therefore, the interest expense is $39,000 + $6,500 = $45,500.

On January 1, Year 1, Victor Company Issued Bonds with a $650,000