Answer:
Garcia Corporation
Bond interest expense reported on the December 31 2020 income statement of Garcia Corporation would be:
= $216,000.
Explanation:
a) Data and Calculations:
Face value of bonds issued = $8,000,000
Issue price at 96 = 7,680,000 (96% * $8,000,000)
Discount on bonds = $320,000
Coupon rate of interest = 5% or 2.5% semi-annually
Maturity period = 10 years
Period of bonds = 20 (10 * 2)
Interest payment = Jan 1 and July 1 (semi-annually)
Amortized semi-annual discounts = $16,000 ($320,000/20)
Interest payment = $200,000 ($8,000,000 * 2.5%)
Interest expense = $216,000 ($200,000 + $16,000)
Analysis on December 31, 2020:
Interest expense $216,000
Interest payable $200,000
Amortized discounts $16,000
