Question

On January​ 1, 2019, Chin Corporation issued $3,400,000​, 16​%, 5−year bonds. The bond interest is payable on January 1 and July 1. The bonds sold for $3,619,600. The market rate of interest for these bonds was 14​%. Under the effective−interest ​method, what is the interest expense for the six months ending July​ 1, 2019?

Answer 1

Answer:

$253,372

Explanation:

Face Value = 3,400,000

Issue Price = 3,619,600

Bond Premium = 219,600

Jan 01, 2019

Balance in Bond Payable  = 3,400,000

Book Value of Bonds = 3,619,600

Balance in Bond Premium = 3,619,600 - 3,400,000 = $219,600

30 June, 2019

Interest Payment = Balance in Bond Payable Jan 1 * 16%/2 = 3,400,000 * 14%/2 = $272,000

Interest expenses = Book Value of Bonds Jan 1 * 14%/2 = 3,619,600 * 14%/2 = $253,372.

Thus, the interest expense for the six months ending July​ 1, 2019 is $253,372