Question

# On January 1, 2018, Baltimore Company issued \$250,000 face value, 8%, 5-year bonds at 102. Interest...

On January 1, 2018, Baltimore Company issued \$250,000 face value, 8%, 5-year bonds at 102. Interest is paid annually on January 1. Baltimore uses the straight-line method for amortization. Use this information to determine the dollar value of the interest expense for the 2018 fiscal year. Round your answer to the nearest whole dollar.

The dollar value of the interest  Expenses for 2018 Fiscal year

Straight line Method

Face value of the bond = 250,000

Issue Price of the bond = 250,000*1.02 = 255,000

Premium on Bonds Payables = issue Price - Face Value

=255,000-250,000 = 5,000

Premium amortized per annum = 5,000 /5 = \$1,000 Per annum

Cash interst Per YEar = 250,000*8% = 20,000

Interest Expenses per Year = Cash interest - Premium amortized per YEar

= 20,000-1,000 = \$9,000

Answer: Interest Expenses = \$ 9,000

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