Question

On January 1, 2007, the Queen Corporation issued 10% bonds with a face value of $100,000. The bonds are sold for $98,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2011. Queen records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2007, is
a. $9,600
b. $9,800
c. $10,400
d. $10,200

Answer 1

Answer: $5200

Explanation:

The following information can be gotten from the question:

Face value of bonds = $100,000

Sale price of bonds = $98,000.

Discount = $2000

Years till maturity = 5 years

Maturity Periods = 5 × 2 = 10 years

Bond ammortization = 2000/10 = 200

Interest Payable = $100000 × 10% × 1/2 = $100,000 × 0.1 × 0.5 = $5000

Therefore, interest expense will be:

= $5000 + $200

= $5200