Question

The Levi Company issued $90,000 of 6% bonds on January 1 of the current year at face value. The bonds pay interest semiannually on June 30 and December 31. The bonds are dated January 1, and mature in five years, on January 1. Determine the total interest expense related to these bonds for the current year ending on December 31 is

Answer 1

Answer:

$5,400 is the total interest expense for the current year.

Explanation:

Firstly,the cash proceeds from  the bond issuance is the face value of $90,000.

However, interest expense on 30 June which is the semiannual coupon payment is computed thus:

interest expense=$90,000*6%*6/12=$2700

In addition, interest expense on 31 December  which is the semiannual coupon payment is computed thus:

interest expense=$90,000*6%*6/12=$2700

The annual interest expense=$2,700+$2,700=$5,400