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16 October, 19:06

On January 1, 2009, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30, 2009 is $25,000.

a. TRUE

b. FALSE

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Answers (1)
  1. 16 October, 21:47
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    Annual interest expense = 10% x $500,000 = $50,000

    Interest expense on June 30 = $50,000/2 = $ 25,000

    The correct answer is A

    Explanation:

    In this case, there is need to calculate the annual interest expense, which is coupon rate (10%) multiplied by par value of the bond ($500,000). Then, we will divide the annual interest expense by 2 in order to obtain the semi-annual interest expense.
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Home » Business » On January 1, 2009, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $487,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount.
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