A corporation issued $600,000, 10%, 7-year bonds on January 1, 2021 for $648,666, which reflects an effective-interest rate of 7%.Interest is paid annually on January 1.If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on December 31, 2021, is

Question

Quizplus · Accepted Answer

The bond interest expense using the effective-interest method is calculated by multiplying the carrying amount of the bonds at the beginning of the period by the effective interest rate. At the beginning, the carrying amount is $648,666, and the effective interest rate is 7%. Thus, the interest expense for the year is $648,666 * 7% = $45,406.62, which rounds to $45,407.

A Corporation Issued $600,000, 10%, 7-Year Bonds on January 1