At the beginning of 2020, Wallace Corporation issued 10% bonds with a face value of $6000000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5558400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2020

Question

Business

Jacoby

20 May, 23:35

At the beginning of 2020, Wallace Corporation issued 10% bonds with a face value of $6000000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5558400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2020

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Christina Hutchinson · Answer 1

The amount of interest expense to be reported is $669,018

Explanation:

Under the method referred to as the effective interest, the interest of expense is determined by the market yield computed on the book value of the bond and the difference between the coupon and the yield payment is called the discount amortization amount.