On January 1,2010,a corporation issued a $400,000,12% bond.The interest is payable semi-annually on June 30 and December 31.The issue price was $413,153 based on a 10% effective (market)interest rate.Assuming the effective-interest method of amortization is used,what is the interest expense for the six-month period ending December 31,2010 (to the nearest dollar)?
A)$24,000
B)$20,491
C)$20,000
D)$20,825

Question

Quizplus · Accepted Answer

June 30, 2010 interest expense ($20,658) = January 1, 2010 book value ($413,153) F1F1F1S1F1F1F10 Six-month market rate of interest (10% F1F1F1S1F1F1F10 6/12).June 30, 2010 book value ($409,811) = January 1, 2010 book value ($413,153) - June 30, 2010 premium on bonds payable amortization [Interest expense ($20,658) - Cash interest payment ($400,000 F1F1F1S1F1F1F10 .12 F1F1F1S1F1F1F10 6/12)].December 31, 2010 interest expense ($20,491) = June 30, 2010 book value ($409,811) F1F1F1S1F1F1F10 Six-month market rate of interest (10% F1F1F1S1F1F1F10 6/12).

On January 1,2010,a Corporation Issued a $400,000,12% Bond