On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used.
-Rounding all calculations to the nearest whole dollar,what is the interest expense for the six-month period ending June 30,2019?

Question

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used. 
-Rounding all calculations to the nearest whole dollar,what is the interest expense for the six-month period ending June 30,2019?

Quizplus · Accepted Answer

The interest expense for the six-month period ending June 30, 2019, is calculated using the effective-interest method. This involves applying the market interest rate (10% annually, or 5% semiannually) to the carrying amount of the bonds at the beginning of the period. The carrying amount at issuance is $413,153. Therefore, the interest expense is $413,153 * 5% = $20,657.65, rounded to the nearest whole dollar is $20,658.

On January 1,2019,a Company Issued $400,000 of 10-Year,12% Bonds