On January 1, 2010, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2014. Baker records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2010, is
A) $4,000
B) $4,200
C) $5,400
D) $5,800

Question

Quizplus · Accepted Answer

The bond discount is $4,000 ($50,000 - $46,000) and is amortized over 5 years (10 periods). The semiannual amortization is $400 ($4,000 / 10). The annual interest payment is $5,000 (10% of $50,000). Therefore, the bond interest expense for 2010 is $5,800 ($5,000 + $400 + $400).

On January 1, 2010, the Baker Corporation Issued 10% Bonds