A company issued 10-year,7% bonds with a par value of $100,000.The company received $96,526 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:
A)$3,326.
B)$3,500.00.
C)$3,673.70.
D)$7,000.00.
E)$7,347.40.

Question

Quizplus · Accepted Answer

The total interest paid over the 10-year period would be $70,000 (7% of $100,000) and since the amount received for the bonds is $96,526, the difference of $26,526 represents the discount on the bonds. To calculate the straight-line method of amortization, we divide the discount by the number of interest periods (20 for a 10-year bond with semiannual payments) to get $1,326.30. This is also the amount of the first interest payment because the bond sells at a discount, hence the first semiannual interest expense is $1,326.30 + $2,347.40 = $3,673.70 (option C).

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