Warren Company issued $900,000 of 8%, 5-year bonds dated January 1, 2019, for $916,000. Interest is paid on January 1 and July 1. What is the total amount of interest expense for the bonds for 2019, using the straight-line method of amortization?

Question

Quizplus · Accepted Answer

The total interest expense for 2019 includes the cash interest paid and the amortization of the premium. The cash interest is $900,000 * 8% = $72,000 annually. The premium of $16,000 is amortized over 5 years, resulting in $3,200 per year. Therefore, the total interest expense for 2019 is $72,000 - $3,200 = $68,800.

Warren Company Issued $900,000 of 8%, 5-Year Bonds Dated January