Cubs Corporation issues $500,000,10%,5-year bonds on January 1,2014 for $479,000.Interest is paid annually on January 1.If Cubs Corporation uses the straight-line method of amortization of bond discount,the amount of interest expense recorded at December 31,2014 would be:

Question

Quizplus · Accepted Answer

The bond discount is $21,000 ($500,000 - $479,000). Using the straight-line method, the annual amortization of the discount is $4,200 ($21,000 / 5 years). The annual interest payment is $50,000 (10% of $500,000). Therefore, the total interest expense is $54,200 ($50,000 + $4,200).

Cubs Corporation Issues $500,000,10%,5-Year Bonds on January 1,2014 for $479,000