Answer:
$1,185,000 interest expense will be recognized in 2017.
Explanation:
The bond issued on discount has two things to charge as an interest expense, the coupon payment and the discount amortization. The discount given on the bond is amortized over the life of the bond and charged to the interest expense account
Discount given = Face value - Proceeds received = $15,000,000 - 14,703,108 = $296,892
Each period amortization = $296,892 / (20 x 2 ) = $7,422.3
Coupon payment = 15,0000,000 x 7.8% / 2 = $585,000
Total interest Expense = Coupon Payment + Discount amortization = 585,000 + $7,422.3 = $592,422.3 per period
Effective interest Amortization rate = 592,422.3 x 2 / 15,000,000 = 7.9%
Expense for 2017 = 15,000,000 x 7.9% = $1,185,000
