Question

On January 1, 2020, Global Sales issued $25,000 in bonds for $29,800. These are eight-year bonds with a stated rate of 15% and pay semiannual interest. Global Sales uses the straight-line method to amortize the bond premium. On June 30, 2020, when Global makes the first payment to bondholders, what is the amount that will be reported as Interest Expense? (Round your intermediate answers to the nearest dollar.) Group of answer choices $1575 $3225 $1875 $1225

Answer 1

Answer:

$ 1,875  

Explanation:

Note that cash payable to bondholders semiannually( semiannual coupon payment) is the face value multiplied by the stated rate of 15% apportioned to reflect six-month payment rather than a whole year as computed below:

semiannual coupon payment=face value*coupon rate*6/12

face value=$25,000

coupon rate=15%

semiannual coupon payment=$25,000*15%*6/12

semiannual coupon payment=$1,875