On January 1, 2015, Carter Sales issued $15,000 in bonds for $15,800. They were 8-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the bond premium. On June 30, 2015, when Carter makes the first payment to bondholders, how much will they report as Interest Expense?

Question

Quizplus · Accepted Answer

The bond premium is $800 ($15,800 - $15,000) and is amortized over 16 periods (8 years x 2). The semiannual amortization is $50 ($800/16). The semiannual interest payment is $675 ($15,000 x 9% x 1/2). The interest expense is the interest payment minus the amortization of the premium: $675 - $50 = $625.

On January 1, 2015, Carter Sales Issued $15,000 in Bonds