The amount of bond interest expense recognized by Trego Company in 2012 with respect to these bonds is:
A) $40,000.
B) $42,000.
C) $60,000.
D) $44,000.

Question

Quizplus · Accepted Answer

The amount of bond interest expense recognized is equal to the interest paid plus the amortization of the premium or minus the amortization of the discount. In this case, the premium is $4,000 (102,000 - 98,000) and the bonds were issued on July 1, 2012, so only six months of interest expense will be recognized in 2012. The annual interest payment is $80,000 (5% x $1,600,000), so the six-month interest payment is $40,000. The amortization of the premium for six months is $2,000 ($4,000 x 6/12). Therefore, the bond interest expense recognized in 2012 is $40,000 + $2,000 = $42,000.

The Amount of Bond Interest Expense Recognized by Trego Company