A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109.

What is interest expense for 2013, using straight-line amortization?

a. $1,540,207

b. $1,170,000

c. $1,176,894

d. $1,184,845

Option (D) is correct.

Explanation:

Given that,

company issues = $15,000,000 bonds

Rate of interest = 7.8%

Time period = 20 years

Interest expense for 2013:

= (Issued amount * rate) + [ (Issued amount - Bonds proceeds) : Time period]

= ($15,000,000 * 7.8%) + [ ($15,000,000 - $14,703,109) : 20]

= $1,170,000 + $14,845

= $1,184,845

Therefore, the interest expense for 2013, using straight-line amortization is $1,184,845.