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A corporation issued $580000, 10%, 5-year bonds on January 1, 2020 for $626400, which reflects an...

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

$40600.
$43848.
$58000.
$62640.
business   accounting   
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Answer #1

Answer: The correct answer is $43,848

Carrying Value= $626,400

Market Rate of Interest = 7%

Interest Expense to be Recognised on December 31, 2020 = Carrying Value* Market Rate of Interest
Interest Expense to be Recognised on December 31, 2020 = $626,400 * 7%
Interest Expense to be Recognised on December 31, 2020 = $43,848

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