Question

On January 1, a company issued 4%, 20-year bonds with a face amount of $55 million for $42,287,047 to yield 6%. Interest is paid semiannually. What was the straight-line interest expense on the December 31 annual income statement? (Enter your answer in whole dollars. Round your intermediate calculations to the nearest dollar amount.)

Answer 1

Answer:

Interest Expenses to be reported Income Statement = Interest Paid for the year + Discount amortized during the year

Face Value of Bonds = $55,000,000
Issuing Amount = $42,287,047
Discount on Bonds Payable = $55,000,000 - $42,287,047
Discount on Bonds Payable = $12,712,953

Discount to be amortized Semi-annually = 12,712,953 / 20 * 6/12
Discount to be amortized Semi-annually = $317,823.80

Discount amortized during the year = $317,823.80 * 2
Discount amortized during the year = $635,647.60

Interest paid Semi-annually = $55,000,000* 4% * 6/12
Interest paid Semi-annually = $1,100,000

Interest Paid during the year = $1,100,000 * 2
Interest Paid during the year = $2,200,000

Interest Expenses to be reported Income Statement = $2,200,000 + $635,647.60
Interest Expenses to be reported Income Statement = $2,835,648