Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020

Question

Pablo Burns

Business

14 November, 12:10

Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020

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Gilberto Gomez · Answer 1

Kenoly uses the effective-interest method, the amount of interest to be recorded in the financial statements on October 31, 2020 is $18,750.

Explanation:

Bond cost 562500

Bond discount 9%

Bond years 10

Bond yield 10%

Discount (June 30 - Oct. 30) = 9% * 4/12 = 0.033

Interest (June 30 - Oct. 30) = 0.033[ 10% * 4/12]

Interest Expense = $18,750