Question

On January 1, 2019, Commercial Equipment Sales issued 22,000 in bonds for 21700. These are six−year bonds with a stated interest rate of 14% and pay semiannual interest on June 30 and December 31. Commercial Equipment Sales uses the straight− line method to amortize the Bond Discount. What amount is debited to Interest Expense on June 30, 2019?

Answer 1

Answer:

$1,565

Explanation:

Interest expense = Interest payment + Amortization expense

also,

Interest payment = 22,000 × 14% × [ 6 ÷ 12 ]           [∵ 6 ÷ 12 ; since payment are semiannual ]

Thus,

Interest payment = $1,540

and,

Amortization expense = [22,000 - 21,700 ] ÷ [6 × 2]      

= $25

Therefore,

Interest expense = $1,540 + $25

= $1,565