Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Question

Quizplus · Accepted Answer

The total interest cost of the bonds includes the stated interest plus the discount on issuance. The stated interest is $200,000 * 6% * 20 = $240,000. The discount on issuance is $200,000 * (100% - 98%) = $4,000. Therefore, the total interest cost is $240,000 + $4,000 = $244,000.

Pelican Company Issued $200,000 of 20-Year,6 Percent Bonds at 98