Question

A company issued 5-year, 6% bonds with a par value of $97,000. The company received $94,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:______.

Answer 1

Answer:Interest expense=$2,704.70

Explanation:

Cash Interest paid for the first semiannual interest period = Principal x Rate x Time (Period)

$97,000 × 0.06 × 1/2 year =$2,910

Straight line method  to calculate the premium  amortized=Bond Issue Price – Face Value)/ Bond term

= ($97,000 − $94,947) / 5 /2 = $2,053/10 =$205.30

Interest expense=Cash Interest paid - premium  amortized

$2,910 − $205.30 = $2,704.70