Question

Earl Lee Riser Alarm Co. issued $10,000 of bonds on January 1, 2018. The bonds pay...

Earl Lee Riser Alarm Co. issued $10,000 of bonds on January 1, 2018. The bonds pay interest semiannually. This is a partial bond amortization schedule for the bonds.

What would be the total interest expense recognized for the bond issue over its full term?

Payment

Cash

Effective

interest

Decrease in

balance

Outstanding

balance

9,080

1

400

409

9

9,089

2

400

409

9

9,098

3

400

409

9

9,107

4

400
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Answer #1

Par value of bonds = $10,000

Cash receipts from issue of bonds = $9,080

Discount on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= 10,000 - 9,080

= $920

Semi annual amortization of bond discount = Discount on bonds payable/Semi annual interest payment periods

9 = 920/Semi annual interest payment periods

Semi annual interest payment periods = 102

Semi annual interest payment = $400

Total interest payment = Semi annual interest payment periods x Semi annual interest payment

= 102 x 400

= $40,800

Total interest expense = Total interest payment during the lifetime of bonds + Discount on bonds payable

= 40,800 + 920

= $41,720

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