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A company issued $600,000 of 13%, ten-year convertible bonds on January 1, 2020 at 107, with...

A company issued $600,000 of 13%, ten-year convertible bonds on January 1, 2020 at 107, with interest payable July 1 and January 1. Bond discount/premium is amortized semiannually on a straight-line basis. How much interest expense should the company record on June 30, 2020? (If there is no interest expense to be recorded, then enter 0.)

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Answer #1

Bonds Value = $600,000

Issue Price = $600,000 * 107/100 = $642,000

Premium on Bonds = $642,000 - $600.000 =$42,000

As, Interet is payable semiannually, So Interest Payment terms = 10 Years * 2 = 20 Payment terms

Interest Expense = Cash Interest on Bond - Premium Amortized

= (Bond Par value * Interest Rate * 6/12) - (Total Premium on Bond / No. of Interest Payment terms)

= ($600,000 * 13% * 6/12) - ($42,000 / 20)

= $39,000 - $2,100

= $36,900

Therefore, Interest expense record on June 30, 2020 = $36,900

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