Question

Jones Company issued bonds with a $200,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7½% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

Answer 1

Answer:

interest expense  = = $16200

Explanation:

Given data:

face value of bonds is $200,000

stated interest rate is 7.5%

interest expense is given as

interest expense  =  cash payment + discount amortized

cash payment = face value × stated interest rate

                        = 200,000 × 7.5

$Discount\ amortized  = \frac{ discount\ on\ bond}{duration\ of\ bond}$

Discount on bond =  face value  -  issue price

                              = 200000 - (200000 × 97%)

                              = $6000

interest expense  $= 200,000\times 7.5 + \frac{6000}{5}$

interest expense  = = $16200