Question

Quark Corp. issues bonds on January 1, 2020 with a face value of $100,000, a coupon (stated) rate of 8%, and they mature in ten years. The market rate is 9% on January 1, 2020. The bonds sell for $93,496 and pay interest semi-annually on 6/30 and 12/31 each year. What is the amount of interest expense recognized by Quark on June 30, 2020

Answer 1

Answer:

$4,207.32  

Explanation:

The interest expense the company would recognize for the six-month period  ended 30 June 2020 is the cash proceeds from the bond issuance multiplied yield to maturity of 9% which is also adjusted to reflect six-month period rather than a full year period as shown below:

The amount of interest expense recognized by Quark on June 30, 2020=$93,496*9%*6/12

The amount of interest expense recognized by Quark on June 30, 2020=$4,207.32  

Answer 2

The amount of interest expense recognized by Quark on June 30, 2020 is $4,207.

Using this formula

Interest expense =Bond carrying value x Market rate x Time

Where:

Bond carrying value=$93,496

Market rate=9%

Time=6/12

Let plug in the formula

Interest expense= $93,496 x .09 x 6/12

Interest expense= $4,207

Inconclusion the amount of interest expense recognized by Quark on June 30, 2020 is $4,207.

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