Apple Company sold$1,200,000 of 8%,10-year bonds at 97 on January 1,2021.The bonds were dated January 1,2021 and pay interest on June 30 and December 31.If Apple uses the straight-line amortization,what would the total interest expense recognized for the bond issue over its full term?
Semi annual interest payment = Par value of bonds x Interest rate x 6/12
= 1,200,000 x 8% x 6/12
= $48,000
Total interest payment during the life of bonds = Semi annual interest payment x Number of semi annual interest payment period
= 48,000 x 20
= $960,000
Par value of bonds = $1,200,000
Issue price =97
Cash received from issuance of bonds = Par value of bonds x Issue price
= 1,200,000 x 97%
= $1,164,000
Discount on issue of bonds = Par value of bonds- Cash received from issuance of bonds
= 1,200,000-1,164,000
= $36,000
Total interest expense = Total interest payment during the life of bonds+ Discount on bonds payable
= 960,000+36,000
= $996,000
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