Question

On March 1, 2014, Angela Company issues $100,000, 4.8%, 4-year bonds to yield 8%, however the bonds are dated January 1, 2014. Interest is paid on Jun 30 and December 31. The proceeds from the bonds are $89,228 plus accrued interest. The company's fiscal year ends on December 31 and they use the straight-line method to amortize discounts and premiums.

a) What amount of interest expense will be reported on the 2014 Income Statement? (Please show the process)

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Interest expense = (Cash interest Paid -accrued interest on issue of bonds)+ (discount on isse of bond* expired period / total period of bond) = ((100000*4.8%) - ((100000*4.8%)*2/12)) + ((100000-89228)*10/48) = (4800 - 800) + (10772*10/48) = 4000+2244 = $6244 Thus the final answer interest expense = $6244 For any help please comment in the comment box