Applegate Corporation sells $100,000,8%,10-year bonds for 95 on January 1.Interest is paid on January 1 and July 1.Straight-line amortization is used.The amount of interest expense recorded on July 1,six months after issuance is:

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The bonds were sold for 95% of their face value, so they were sold for $95,000 ($100,000 * 95%). The discount on the bonds is $5,000 ($100,000 - $95,000). The straight-line amortization of the discount over the 10-year period (20 six-month periods) is $250 every six months ($5,000 / 20). The interest expense includes both the actual cash interest paid and the amortization of the discount. The cash interest paid every six months is $4,000 (8% of $100,000, divided by 2 for semiannual payments). Therefore, the total interest expense recorded on July 1 is $4,250 ($4,000 cash interest + $250 amortization of discount).

Applegate Corporation Sells $100,000,8%,10-Year Bonds for 95 on January 1