On January 1, 2009, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30, 2009 is $25,000.

a. TRUE

b. FALSE

Question

Business

Ali Stanton

30 August, 06:09

On January 1, 2009, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30, 2009 is $25,000.

a. TRUE

b. FALSE

+2

Answers (1)

Know the Answer?

Azul David · Answer 1

Annual interest expense = 10% x $500,000 = $50,000

Interest expense on June 30 = $50,000/2 = $ 25,000

The correct answer is A

Explanation:

In this case, there is need to calculate the annual interest expense, which is coupon rate (10%) multiplied by par value of the bond ($500,000). Then, we will divide the annual interest expense by 2 in order to obtain the semi-annual interest expense.