Question

Dublin 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 Dublin uses the

straight-line amortization,what would the total interest expense recognized for the bond issue over its full term?

Answer 1

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

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

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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