Scribner Company issued $400,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?
A) $32,000
B) $36,800
C) $27,200
D) $4,800

Question

Quizplus · Accepted Answer

The bond premium is $24,000 ($400,000 x 6%). With straight-line amortization over 5 years, the annual amortization is $4,800 ($24,000 / 5). The annual interest payment is $32,000 ($400,000 x 8%). Therefore, the bond interest expense is $32,000 - $4,800 = $27,200.

Scribner Company Issued $400,000 of 8%, 5-Year Bonds at 106