Park Enterprises issued bonds with a face value of $500,000,a stated rate of interest of 7%,and a 5-year term to maturity.The proceeds from the issuance were $508,000.Interest is payable in cash on December 31 of each year.Assuming straight-line amortization,the amount of interest expense for the first year would be $31,600.

Question

Quizplus · Accepted Answer

Premium = Issue price of $508,000 - Face value of $500,000 = $8,000
Annual amortization of premium = $8,000 ÷ 5 years = $1,600
Cash payment for interest = Face value of $500,000 × Stated rate of 7% = $35,000
Interest expense = Cash payment of $35,000 -Premium amortization of $1,600 = $33,400

Park Enterprises Issued Bonds with a Face Value of $500,000,a