Question

NBC Corporation issued $ 560 000​, 9​%, 5-year bonds on January​ 1, 2019 for $ 606573...

NBC Corporation issued $ 560 000​, 9​%, 5-year bonds on January​ 1, 2019 for $ 606573 when the market interest rate was 7​%. Interest is paid semiannually on January 1 and July 1. The corporation uses the effective-interest method to amortize bond premium. The total amount of bond interest expense recognized on July​ 1, 2019​ is:

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Answer #1

The total amount of bond interest expense recognized on July​ 1, 2019​ is: $21,230

.

The bonds are issued at Premium. The interest expense will be equal to 3.5% of issue price of bond.

Year end Cash paid Interest expense Change in carrying value Carrying value
Issue on January 2019 $                 606,573
June 30, 2019 $              25,200 $               21,230* $            (3,970) $                 602,603

*606573 x 3.5%

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