The amount of bond interest expense recognized by Webster Company in 2012 with respect to these bonds is:
A) $60,000.
B) $63,000.
C) $120,000.
D) $66,000.

Question

Quizplus · Accepted Answer

To calculate the bond interest expense, we need to multiply the bonds outstanding at the beginning of the period by the effective interest rate.

The bonds outstanding at the beginning of the period were $2,000,000.

The effective interest rate is the market rate of interest at the time the bonds were issued, which was 6%.

So the bond interest expense for the year is:

$2,000,000 x 6% = $120,000

However, the company received semi-annual interest payments over the course of the year. These payments need to be subtracted from the total interest expense to arrive at the net bond interest expense for the year.

Each payment was $500,000 x 6% x 6/12 = $15,000

There were four payments during the year, so the total interest received was $60,000.

$120,000 - $60,000 = $60,000

Therefore, the correct answer is D, $66,000.

The Amount of Bond Interest Expense Recognized by Webster Company