Art Company issued 6%, 5 year bonds, with par value of $1,600,000, paying semiannual interest for $1,470,226. The annual market rate of interest on the date of issue was 8%. Assuming effective interest method of amortization, calculate the bond interest expense on the first interest payment date. Select one: A. $117,618 B. $ 58,809 C. $129,774 D. $ 48,000

The correct answer is option (B).

Explanation:

According to the scenario, the given data are as follows:

Bond carrying value = $1,470,226

Rate of interest = 8%

Rate of interest (Semiannual) = 4%

So, we can calculate the the bond interest expense on the first interest payment by using following formula:

The bond interest expense = Bond carrying value * rate of interest (semiannual)

By putting the value we get

= $1,470,226 * 4%

= $58,809