El Dorado Co. issued bonds with a face value of $50,000 and a stated interest rate of 8%. The bonds have a life of five years and were sold at 102 ½. If El Dorado amortizes discounts and premiums using the straight-line method, the amount of interest expense each full year would be:

Question

Quizplus · Accepted Answer

$50,000 x 8% = $4,000 annual interest payment; $50,000 x 2.5% = $1,250 premium; $1,250/5 years = $250 amortization; $4,000 - $250 = $3,750 interest expense