Question

A company uses the calendar year as its accounting period. It has 2,000 18% $1,000 par value bonds outstanding. The interest is paid semiannually on October 31st and May 1st of each year. How much bond interest expense is accrued each December 31st

Answer 1

Answer:

Interest expense = 60,000

Explanation:

Given:

Number of bonds = 2,000

Face value of each Bond = $1,000

Total face value = $1,000 × 2,000 = 2,000,000

Rate of interest = 18% yearly = 0.18 = 0.18 / 2 = 0.09 semi-annual

Number of month = 2 month

Computation of  interest expense from 1 st November to 31 December:

Interest expense = 2,000,000 × 0.09 × (2 / 6)

Interest expense = 60,000