On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is $25,000.
Interest Expense = Cash Paid + Discount Amortization
Interest Expense = ($500,000 * 10% * 6/12) + ($26,155/16) = $26,634.69

Question

Quizplus · Accepted Answer

The calculation for interest expense is incorrect. It should be:

Interest Expense = ($500,000 * 10% * 6/12) + ($26,155/16) = $27,383.44

Therefore, the correct answer is B (False).

On January 1, a Company Issued a $500,000, 10%, 8-Year