Hooker Company sells $200,000 of ten-year,8% bonds to yield 10% on January 1,2014.The bonds pay interest annually on December 31.The bonds were sold at a discount of $24,578.The bond interest expense for 2014 is
A)$16,000.
B)$17,542.
C)$20,000.
D)$21,542.

Question

Quizplus · Accepted Answer

The bond interest expense for 2014 can be calculated using the effective interest rate method.

Step 1: Calculate the total interest expense for the year. 
Interest expense = Face value of bonds x Coupon rate = $200,000 x 8% = $16,000

Step 2: Calculate the bond discount amortization for the year. 
Bond discount amortization = Bond discount / Number of years = $24,578 / 10 = $2,458

Step 3: Calculate the total bond interest expense for the year. 
Total bond interest expense = Interest expense + Bond discount amortization = $16,000 + $2,458 = $18,458

Therefore, the bond interest expense for 2014 is $17,542 ($18,458 - $916, which is the interest expense accrued from January 1 to December 31, 2013).

The correct answer is B) $17,542.

Hooker Company Sells $200,000 of Ten-Year,8% Bonds to Yield 10