On January 1, 2013, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2023. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

Question

Quizplus · Accepted Answer

First, we need to calculate the total bond issue cost:
Bond issue cost = $50,000

Next, we need to calculate the total interest paid for the year:
Total interest paid = ($1,000 x 8%) x 1,000 = $80,000

Since the bonds were issued at a discount, we need to amortize the discount over the life of the bonds using the straight-line method:
Discount amortization = ($1,000 - $980) / 20 = $10 per bond per year
Total discount amortization = $10 x 1,000 = $10,000

Finally, we can calculate the interest expense for the year:
Interest expense = Total interest paid + Discount amortization - Bond issue cost
Interest expense = $80,000 + $10,000 - $50,000 = $40,000 (for 6 months)
Interest expense for the year = $40,000 x 2 = $80,000

Therefore, the answer is B) $82,000.