Question

On january 1 of year 1, congo express airways issued $3,700,000 of 6% bonds that pay interest semiannually on january 1 and july 1. the bond issue price is $3,360,000 and the market rate of interest for similar bonds is 7%. the bond premium or discount is being amortized at a rate of $11,333 every six months. the amount of interest expense recognized by congo express airways on the bond issue in year 1 would be

Answer 1

The amount of interest expense recognized by Congo Express Airways would be $199,334 after one year of being issued. This is calculated by finding 6% of the $3,700,000 which is $222,000. Then subtracting the amortized amount of $22,666 per annum, which was found by doubling the 6 month rate of $11,333. This gives you a total of $199,334.