Hooke Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2020.The bonds had a face value of $400,000, pay interest annually on December 31, and have a call price of 101.Hooke uses the straight-line method of amortization. What is the amount of interest expense Hooke will show with relation to these bonds for the year ended December 31, 2021?

Question

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The annual interest payment is 8% of $400,000, which is $32,000. The discount on the bonds is $400,000 - $377,000 = $23,000. Using the straight-line method, the annual amortization of the discount is $23,000 / 10 = $2,300. Therefore, the interest expense for 2021 is $32,000 + $2,300 = $34,300.

Hooke Company Received Proceeds of $377,000 on 10-Year, 8% Bonds