Question

Please explain how to get the answer, if you can use straight line method:

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,946.80 in cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is?

Answer 1

Amortization Table - Effective Interest Method Period End Cash Int Bond Discount Discount Carrying paid Interest Exp amortization Balance Value $2,053.20 $ 97,946.80 $3,500.00 $ 3,673.01 $ 173.01 $1,880.20 $ 98,119.81 $3,500.00 $ 3,679.49 $ 179.49 $1,700.70 $ 98,299.30 1 2 Interest Expense using Effective Interest Method = $3,679.49 Amortization Table - Straight Line Method Period End Cash Int Bond Discount Discount Carrying paid Interest Exp amortization Balance Value $2,053.20 $ 97,946.80 $3,500.00 $ 3,705.32 $ 205.32 $1,847.88 $ 98,152.12 $3,500.00 $ 3,705.32 $ 205.32 $ 1,642.56 $ 98,357.44 1 2 Interest Expense using Straight Line Method = $3,705.32

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