Question

A company issued 5-year, 8% bonds with a par value of $94,000. The company received $91,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Answer 1

Answer:

interest expense for the first semiannual interest period and subsequent: 3,965.3 dollars

Explanation:

face value      94,000

proceeds        91,947

discount           2,053

under straight-line method the discount amortization will be equally distributed among the payment

2,053 / 10 payment dates = 205.3

Then, we have to add the cash outlay in favor of the bondholders:

94,000 face value x 8% coupon rate / 2 payment per year = 3,760

Total interest expense: 3,760 + 205.3 = 3,965.3