A company issued $400,000,10-year,10 percent bonds at 97.What is the total amount of interest expense that will be recorded over the life of these bonds?

Question

Quizplus · Accepted Answer

The total interest expense includes both the cash interest payments and the amortization of the bond discount. The cash interest payments over 10 years are $400,000 * 10% * 10 = $400,000. The bond was issued at 97, which means there is a discount of $400,000 * 3% = $12,000. The total interest expense is $400,000 + $12,000 = $412,000.

A Company Issued $400,000,10-Year,10 Percent Bonds at 97