Question

On January 1 of the current year, Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 isa. $21,800
b. $10,900
c. $18,200
d. $29,000

Answer 1

Answer:

a. $21,800

Explanation:

The discoun of issuance of the bond is amortized over the period until maturity. Total Interest expesne on a discounted bond is the sum of the coupon payment and the amortization of the discount amount.

Coupon payment = $200,000 x 10% = $20,000 per year

Discount on the bond = $200,000 - $191,000 = $9,000

Discount amotized per year = $9,000 / 5 = $1,800

Total Interest Expense = Coupon Payment + Amortization of Discount

Total Interest Expense = 20,000 + 1800 = $21,800