Cramer Company sold five-year,8% bonds on October 1,2016.The face amount of the bonds was $100,000,while the issue price was $102,000.Interest is payable on April 1 of each year.The fiscal year of Cramer Company ends on December 31.How much interest expense will Cramer Company report in its December 31,2016,income statement (assume straight-line amortization)?

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The annual interest expense is $8,000 (8% of $100,000). The premium of $2,000 is amortized over 5 years, resulting in an annual amortization of $400. For the three months from October 1 to December 31, the interest expense is $2,000 (3/12 of $8,000) minus the premium amortization of $100 (3/12 of $400), totaling $1,900.

Cramer Company Sold Five-Year,8% Bonds on October 1,2016