Question

On January 1, 2007, Maltrex Corporation issued 8% bonds which mature on December 31, 2011 and...

On January 1, 2007, Maltrex Corporation issued 8% bonds which mature on December 31, 2011 and which have a face

value of $100,000. The bonds are sold for $95,000 and pay interest semiannually on June 30 and December 31. If Maltrex

uses the straigh

t-line method for amortization of the bond discount/premium, the bond interest expense for the year ended

December 31, 2007, is

A.

$9,000

B.

$6,375

C.

$8,600

D.

$6,600

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Answer #1

Answer :-

Particulars Amount
Face value of bonds $100,000
Issue price of bonds $95,000
Discount on issue

= $100,000 - $95,000

= $5,000
Number of years till maturity 5 years
Amortization of bonds discount per period

= 5 years * 2

= 10 periods
Interest payable

= $5,000 / 10

= $500
Interest expense

= 100,000 * 8% * [ 1 / 2 ]

= $8,000 * 0.5

= $4,000
interest expense for the year ended December 31,2007

= 4,500 + 4,500

= $9000

So, the answer is Option (A ).$9,000 .

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