A company issued 10-year,7% bonds with a face value of $100,000.The company received $97,947 for the bonds.Using the straight-line method of amortization,the amount of interest expense for the first annual interest period is:
A)$7,000.00
B)$7,205.30
C)$6,794.70
D)$2,053.00

Question

Quizplus · Accepted Answer

Discount on bonds payable = Face value − Issue price
= $100,000 − $97,947 = $2,053
Straight-line amortization = Discount ÷ Number of years
= $2,053 ÷ 10 = $205.30 per year
Interest payment = Face value × Stated interest rate × Time
= $100,000 × 0.07 = $7,000
Interest expense = Interest Payment + Amortization of discount
= $7,000 + $205.30 = $7,205.30

A Company Issued 10-Year,7% Bonds with a Face Value of $100,000.The