Question

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1.
If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is:

a. $2,500
b. $2,290
c. $10,290
d. $2,710

Answer 1

Answer:

Bond interest expense = $2,290

so correct option is b. $2,290

Explanation:

given data

Bond issued = $50,000

Interest rate  = 10%

interest semi-annually = 5%

time period = 5 year

to find out

amount of bond interest expense

solution

we get first Cash interest payment that is here

Cash interest payment = $50,000 × 5%

Cash interest payment = $2,500     ....................1

and Bond premium will be

Bond premium = $52,100 – $50,000

Bond premium = $2,100      .......................2

we know interest paid semi annually so time period will be  = 10

so Amortization of bond premium will be here as

Amortization of bond premium = $\frac{2100}{10}$

Amortization of bond premium = $210      .................3

so  Bond interest expense will be calculate as

Bond interest expense = Cash interest payment - Amortization of bond premium     .......................4

put here value

Bond interest expense = $2,500 - $210

Bond interest expense = $2,290

so correct option is b. $2,290