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Wayne Company issued bonds with a face value of $600,000,a 6% stated rate of interest,and a 10-year term.The bonds were issued on January 1,2016,and Wayne uses the straight-line method of amortization.Interest is paid annually on December 31.
-Assuming Wayne issued the bond for 102½,the amount of interest expense appearing on the 2016 income statement would be:
A)$34,500.
B)$36,000.
C)$37,500.
D)$15,000.

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The bonds were issued at 102.5% of face value, which means they were issued at a premium. The premium is $600,000 * 2.5% = $15,000. Using the straight-line method, the annual amortization of the premium is $15,000 / 10 = $1,500. The stated interest payment is $600,000 * 6% = $36,000. Therefore, the interest expense is $36,000 - $1,500 = $34,500.

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