On November 1, 2015, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2015, and interest is payable each November 1 and May 1. Davis uses the straight-line method of amortization.
How much is the semi-annual interest expense when the straight-line method of amortization is utilized?
A)$2,010.
B)$2,190.
C)$1,095.
D)$2,055.

Question

Quizplus · Accepted Answer

The annual interest expense is $2,100 ($30,000 x 7%). Since interest is paid semi-annually, the semi-annual interest expense is $1,050 ($2,100 ÷ 2). Using the straight-line method of amortization, the premium of $900 ($30,000 - $29,100) is amortized evenly over the 10-year life of the bond, resulting in a semi-annual amortization expense of $45 ($900 ÷ 20). Therefore, the total semi-annual expense is $1,095 ($1,050 + $45). So, the correct option is C.

On November 1, 2015, Davis Company Issued $30,000, Ten-Year, 7