On January 1, 2015, Finch Company issued $72,000 of 5-year bonds with a stated rate of 8%. The market rate at time of issue was 12%, so the bonds were discounted and sold for $61,401. Finch uses the effective-interest method of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year. How much Interest Expense will be recorded when the first interest payment is made?

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Quizplus · Accepted Answer

The interest expense is calculated using the market rate of 12% on the carrying amount of the bonds. The carrying amount at issuance is $61,401, so the interest expense for the first period is $61,401 * (12% / 2) = $3,684.06, rounded to $3,684.

On January 1, 2015, Finch Company Issued $72,000 of 5-Year