Question

At the beginning of 2015, Gromit Corporation issued 10% bonds with a face value of $1,500,000. These bonds mature in five years. On June 30 and December 31, interest is paid. The bonds were sold for $1,389,600 to yield 12%. Gromit uses a calendar-year reporting period. If you use the effective interest method of amortization and you round your answer to the nearest dollar, how much interest expense will you report for 2015?

$166,665

$167,255

$173,145

$166,105

Answer 1

Answer is $167,255

A	B	C	D	E	F	G
Date	Interest Payment 5% x Face Value	Interest Expense 6% x Previous BV in G	Amortization of bond discount C minus B	Debit Balance in the Account BOND DISCOUNT	Credit Balance in the Accounts Bonds payable	Book Value of the Bonds F Minus E
								Credit Cash	Debit Interest Expense	Credit Bond Discount
Jan,01,2015				$ 110,400.00	$ 1,500,000.00	$ 1,389,600.00
June, 30,2015	$ 75,000.00	$    83,376.00	$ 8,376.00	$ 102,024.00	$ 1,500,000.00	$ 1,397,976.00
Dec,31,2015	$ 75,000.00	$    83,879.00	$ 8,879.00	$    93,145.00	$ 1,500,000.00	$ 1,406,855.00
		$ 167,255.00