Question

Jasmine Company sold $1,000,000 of 6%, 10-year bonds at 97 on January 1, 2020. The bonds were dated January 1, 2020 and pay interest on June 30 and December 31. Jasmine paid $50,000 in bond issue costs. If Jasmine uses the straight-line amortization, the amount of interest expense for year 2020 would be:__________.

Answer 1

Answer:

$62,445

Explanation:

Discount on bond payable = ($1,000,000 / 100) x (100-97) = 30,000

Number of period = 2 x 10 = 20

Discount amortized every period = 30,000 / 20 = $1,500

Interest Expense on June 30 = (1,000,000 x 6%/2) + 1500 = $31,500

Principal Payment = $50,000 - $31,500 = $18,500

Outstanding bonds = 1,000,000 - $18,500 = $981,500

Interest Expense on December 31 = ($981,500 x 6%/2) + 1500 = $30,945

Total Interest Expense in 2020 = $31,500 + $30,945 = $62,445