A company issued 10-year, 7% bonds with a par value of $100,000. The company received $96,526 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:
A) $7,347.40.
B) $3,500.00.
C) $3,673.70.
D) $7,000.00.
E) $3,326.00.

Question

Quizplus · Accepted Answer

The first step is to calculate the total interest expense over the life of the bonds, which is the difference between the face value of the bonds and the amount received for them:
$100,000 - $96,526 = $3,474

Next, we divide this total interest expense by the number of semiannual interest periods (20, since there are 10 years and interest is paid twice a year) to get the amount of interest expense for each period:
$3,474 / 20 = $173.70

Finally, since interest is paid semiannually, we divide this amount by 2 to get the interest expense for the first semiannual period:
$173.70 / 2 = $86.85

Therefore, the correct answer is C) $3,673.70.

A Company Issued 10-Year, 7% Bonds with a Par Value