Question

g On January 1, 2020, Fotso Corporation issued 5 year bonds with a face value of $200,000 and coupon rate of 12% interest, payable semiannually on June 30 and December 31. The market rate of interest at the time of issuance was 14%, and the bonds were issued at a discount of $14,047. Using the effective-interest method, the amount of discount that should be amortized on December 31, 2020, is

Answer 1

Answer:

amortization of bond discount December 31 = $1,087.88

Explanation:

bonds' issue price = $200,000 - $14,047 = $185,953

amortization of bond discount June 30 = ($185,953 x 7%) - ($200,000 x 6%) = $1,016.71

amortization of bond discount December 31 = ($186,969.71 x 7%) - ($200,000 x 6%) = $1,087.88

total interest expense Decmber 31 = $13,087.88