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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.

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Answer #1

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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