Question

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109.

What is interest expense for 2013, using straight-line amortization?
a. $1,540,207
b. $1,170,000
c. $1,176,894
d. $1,184,845

Answer 1

Answer:

Option (D) is correct.

Explanation:

Given that,

company issues = $15,000,000 bonds

Rate of interest = 7.8%

Time period = 20 years

Interest expense for 2013:

= (Issued amount × rate) + [(Issued amount - Bonds proceeds) ÷ Time period]

= ($15,000,000 × 7.8%) + [($15,000,000 - $14,703,109) ÷ 20]

= $1,170,000 + $14,845

= $1,184,845

Therefore, the interest expense for 2013, using straight-line amortization is $1,184,845.