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14 March, 01:46

On January 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is payable semiannually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. The effective-interest method of amortization is used. Rounding all calculations to the nearest whole dollar, what is the interest expense for the six-month period ending June 30, 2019

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  1. 14 March, 02:02
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    The answer is $20,658

    Explanation:

    Solution:

    Recall that

    A company issued $400,000 of 10-year

    A bond = 20%

    The price issue = $413,153

    The interest rate of market = 10%

    The next step is to calculate the interest expense for the six-month period ending June 30, 2019

    Now,

    On January 1, 2019 the book value * the six months market rate of interest is

    = $413,153 * (10% * 6/12)

    = $ 20,658
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Home » Business » On January 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is payable semiannually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate.
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