Question

On January 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is payable semiannually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. The effective-interest method of amortization is used. Rounding all calculations to the nearest whole dollar, what is the interest expense for the six-month period ending June 30, 2019

Answer 1

Answer:

The answer is $20,658

Explanation:

Solution:

Recall that

A company issued  $400,000 of 10-year

A bond = 20%

The price issue = $413,153

The interest rate of market = 10%

The next step is to calculate the interest expense for the six-month period ending June 30, 2019

Now,

On January 1, 2019 the book value * the six months market rate of interest is

= $413,153  * (10% * 6/12)

= $ 20,658