On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The total interest expense on the bond over its eight-year life is $400,000.
Total interest expense recognized is ($500,000 x 10% x 8 years) + discount ($13,000) = $413,000.

Question

Quizplus · Accepted Answer

The calculation for total interest expense recognized is incorrect. The correct calculation is ($500,000 x 10% x 8 years) - discount ($13,000) = $387,000.

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