Question

# A company issues \$15100000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is...

A company issues \$15100000, 9.8%, 20-year bonds to yield 10% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are \$14840898. Using effective-interest amortization, how much interest expense will be recognized in 2017? \$1484196 \$1484072 \$739900 \$1479800

Interest Expense to be recognized in 2017 is \$1,484,197

Interest Expense for Jan-Jun = \$14,840,898* 10%/2 = \$742,045

Amortization of Discount= (\$14,840,898 * 10%/2) - (\$15,100,000* 9.8%/2)

= \$742,045 - \$739,900 = \$2,145

Carry Amount of Bond on June 30 = \$14,840,898 + (\$14,840,898* 10%/2) - (\$15,100,000* 9.8%/2)

= \$14,840,898 + \$742,045- \$739,900 = \$14,843,043

Interest Expense for Jun-Dec= [\$14,840,898 + (\$14,840,898 *10%/2) -(\$15,100,000*9.8%/2)]*10% /2

= (\$14,840,898 + \$742,045 - \$739,900) *10% /2

= \$14,843,043  *10% /2 = \$742,151

Interest Expense for 2017 = \$742,045 + \$742,152 = \$1,484,196

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