Question

A company issued five-year, 7% bonds with a par value of $150,000. The market rate when the bonds were issued was 6.5%. The company received $170,550 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Answer 1

Amount of recorded interest expense for the first semiannual interest period is $3,195.

	A	B	C	D	E
Semiannual Interest Period	Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized premium	Carrying Value at end of period
	150,000*7%*6/12	A-C	20,550/10	D-C	E-C
0				$20,550	$170,550
1	$5,250	$3,195	$2,055	$18,495	$168,495
2	$5,250	$3,195	$2,055	$16,440	$166,440
3	$5,250	$3,195	$2,055	$14,385	$164,385
4	$5,250	$3,195	$2,055	$12,330	$162,330
5	$5,250	$3,195	$2,055	$10,275	$160,275
6	$5,250	$3,195	$2,055	$8,220	$158,220
7	$5,250	$3,195	$2,055	$6,165	$156,165
8	$5,250	$3,195	$2,055	$4,110	$154,110
9	$5,250	$3,195	$2,055	$2,055	$152,055
10	$5,250	$3,195	$2,055	$0	$150,000