Using the straight-line method, the semiannual bond interest expense of a 12%, $800,000, 10-year bond issued at 95 is:

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The semiannual bond interest expense is calculated by first determining the annual interest payment, which is 12% of $800,000 = $96,000. Since the bond was issued at 95, it was issued at a discount (95% of $800,000 = $760,000). The straight-line method spreads the discount or premium evenly over the life of the bond. The total discount is $800,000 - $760,000 = $40,000. Over 10 years, or 20 semiannual periods, this amounts to $2,000 per period. Therefore, the semiannual interest expense is the semiannual interest payment plus the amortization of the discount: ($96,000 / 2) + $2,000 = $50,000.

Using the Straight-Line Method, the Semiannual Bond Interest Expense of a 12