Question

On November 1, 2019, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2019, and interest is payable each November 1 and May 1. Davis uses the straight-line method of amortization.
How much is the semi-annual interest expense when the straight-line method of amortization is utilized?


A. $1,095.


B. $2,055.


C. $2,190.


D. $2,010.

Answer 1

Answer: A.) $1,095

Explanation:

Bond value = $30,000

Rate = 7%

Period = 10 years

Issue price = $29,100

Bond value × rate :

30,000 × 0.07 = $2100

Semi annually:

$2100 / 2 = $1050

(Bond value - issue price) ÷ (period × 2)

($30,000 - $29,100) / (10 × 2)

$900 ÷ 20 = $45

$1050 + $45 = $1,095