Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Question

Quizplus · Accepted Answer

The total interest cost includes both the cash interest payments and the discount on the bonds. The cash interest payments over 20 years are $120,000 (6% of $100,000 annually for 20 years). The bonds were issued at 98, meaning there is a $2,000 discount ($100,000 - $98,000). The total interest cost is $120,000 + $2,000 = $122,000.

Suffolk Corporation Issued $100,000 of 20-Year,6 Percent Bonds at 98