Use the following information to answer the next 4 questions:
Discount-Mart issues $10 million in bonds on January 1,2015.The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year.Below is a partial bond amortization schedule for the bonds:

-What is the interest expense on the bonds in 2015?
A)$693,103.
B)$600,000.
C)$345,639.
D)$347,464.

Question

Use the following information to answer the next 4 questions:
Discount-Mart issues $10 million in bonds on January 1,2015.The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year.Below is a partial bond amortization schedule for the bonds:
 
-What is the interest expense on the bonds in 2015?
A)$693,103. 
B)$600,000. 
C)$345,639. 
D)$347,464.

Quizplus · Accepted Answer

The interest expense for the bonds in 2015 can be calculated by taking the carrying value of the bonds on January 1, 2015 ($10,000,000) and multiplying it by the effective interest rate for the period (3.466%). This gives an interest expense of $346,600 for the period from January 1 to June 30, 2015. Since interest is paid semiannually, this amount is also the interest expense for the entire year 2015, so the correct answer is A) $693,103.

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