Wildcat Corporation issues $500,000, 10%, 5-year bonds on January 1, 2012 for $479,000. Interest is paid semiannually on January 1 and July 1. If Wildcat uses the straight-line method of amortization of bond discount, the amount of bond interest expense on July 1, 2012 is:
A) $22,900.
B) $25,000.
C) $27,100.
D) $52,100.

Question

Quizplus · Accepted Answer

The bond discount is $21,000 ($500,000 - $479,000). Over 5 years, with semiannual payments, there are 10 periods. The discount amortization per period is $2,100 ($21,000 / 10). The semiannual interest payment is $25,000 (10% of $500,000 / 2). Therefore, the bond interest expense on July 1, 2012, is $27,100 ($25,000 + $2,100).

Wildcat Corporation Issues $500,000, 10%, 5-Year Bonds on January 1