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27 March, 08:49

A corporation issued $580000, 10%, 5-year bonds on January 1, 2020 for $626400, which reflects an effective-interest rate of 7%. Interest is paid annually on January 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on December 31, 2020, is

a.$40600.

b.$43848.

c.$58000.

d.$62640.

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Answers (1)
  1. 27 March, 08:56
    0
    The correct answer is option (B).

    Explanation:

    According to the scenario, the given data are as follows:

    For Jan. 1,2020 value = $626,400

    Interest rate = 7%

    So, we can calculate the amount of bond interest expense by using following formula:

    Interest Expense = Carrying Value * Market Interest Rate

    By putting the value of following

    Interest expense = $626,400 * 7%

    = $626,400 * 0.07

    = $43,838

    Hence, the amount of bond interest expense to be recognized on December 31, 2020, is $43,838.
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