On March 2,2016,20-year,6 percent,general obligation serial bonds were issued at the face amount of $3,000,000.Interest of 6 percent per annum is due semiannually on March 1 and September 1.The first payment of $150,000 for redemption of principal is due on March 1,2017.Fiscal year-end occurs on December 31.What is the interest expense for the fiscal year ending December 31,2016?

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Quizplus · Accepted Answer

The interest expense for the fiscal year ending December 31, 2016, is $150,000. Since the bonds were issued on March 2, 2016, the interest payments for that year would be on September 1, 2016, and March 1, 2017. The interest for each period is calculated as $3,000,000 * 6% / 2 = $90,000. However, only the September 1 payment falls within the 2016 fiscal year, so the interest expense is $90,000 for September 1, 2016, and $60,000 for the period from March 2 to March 1, 2017, totaling $150,000.

On March 2,2016,20-Year,6 Percent,general Obligation Serial Bonds Were Issued at the Face