On January 1, 2019, Jennings, Inc. issued $400,000, 10-year, 10% bonds for $360,000. The bonds pay interest on June 30 and December 31. The market rate is 10%.
How much is the interest expense on the bonds for the first interest payment on June 30, 2019?

Question

Quizplus · Accepted Answer

The interest expense is calculated using the market rate on the carrying amount of the bonds. The carrying amount is $360,000, and the market rate is 10%. For six months, the interest expense is $360,000 * 10% * (6/12) = $18,000.