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.

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The total interest expense on the bond over its eight-year life is calculated based on the coupon rate (10%) times the principal amount ($500,000), which equals $50,000 per year. Over eight years, this amounts to $400,000 in interest payments. However, the interest expense also includes the amortization of the bond discount ($13,000), which is the difference between the face value ($500,000) and the proceeds ($487,000). Therefore, the total interest expense over the life of the bond is greater than $400,000.

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