Question

10 points Save Anne Livermore Company sold $800,000 of 8%, 20-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 Livermore uses the straight-line amortization, what would the total interest expense recognized for the bond issue over its full term? Do not add dan

Answer 1

Total Interest Expense

$             1,304,000

Working:

Straight Line Method
Date	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Amount of Bonds
1/1/2021				$              24,000	$                                          776,000
30/6/2021	$        32,000	$                   32,600	$                         600	$              23,400	$                                          776,600
31/12/2021	$        32,000	$                   32,600	$                         600	$              22,800	$                                          777,200
30/6/2022	$        32,000	$                   32,600	$                         600	$              22,200	$                                          777,800
31/12/2022	$        32,000	$                   32,600	$                         600	$              21,600	$                                          778,400
30/6/2023	$        32,000	$                   32,600	$                         600	$              21,000	$                                          779,000
31/12/2023	$        32,000	$                   32,600	$                         600	$              20,400	$                                          779,600
30/6/2024	$        32,000	$                   32,600	$                         600	$              19,800	$                                          780,200
31/12/2024	$        32,000	$                   32,600	$                         600	$              19,200	$                                          780,800
30/6/2025	$        32,000	$                   32,600	$                         600	$              18,600	$                                          781,400
31/12/2025	$        32,000	$                   32,600	$                         600	$              18,000	$                                          782,000
30/6/2026	$        32,000	$                   32,600	$                         600	$              17,400	$                                          782,600
31/12/2026	$        32,000	$                   32,600	$                         600	$              16,800	$                                          783,200
30/6/2027	$        32,000	$                   32,600	$                         600	$              16,200	$                                          783,800
31/12/2027	$        32,000	$                   32,600	$                         600	$              15,600	$                                          784,400
30/6/2028	$        32,000	$                   32,600	$                         600	$              15,000	$                                          785,000
31/12/2028	$        32,000	$                   32,600	$                         600	$              14,400	$                                          785,600
30/6/2029	$        32,000	$                   32,600	$                         600	$              13,800	$                                          786,200
31/12/2029	$        32,000	$                   32,600	$                         600	$              13,200	$                                          786,800
30/6/2030	$        32,000	$                   32,600	$                         600	$              12,600	$                                          787,400
31/12/2030	$        32,000	$                   32,600	$                         600	$              12,000	$                                          788,000
30/6/2031	$        32,000	$                   32,600	$                         600	$              11,400	$                                          788,600
31/12/2031	$        32,000	$                   32,600	$                         600	$              10,800	$                                          789,200
30/6/2032	$        32,000	$                   32,600	$                         600	$              10,200	$                                          789,800
31/12/2032	$        32,000	$                   32,600	$                         600	$                 9,600	$                                          790,400
30/6/2033	$        32,000	$                   32,600	$                         600	$                 9,000	$                                          791,000
31/12/2033	$        32,000	$                   32,600	$                         600	$                 8,400	$                                          791,600
30/6/2034	$        32,000	$                   32,600	$                         600	$                 7,800	$                                          792,200
31/12/2034	$        32,000	$                   32,600	$                         600	$                 7,200	$                                          792,800
30/6/2035	$        32,000	$                   32,600	$                         600	$                 6,600	$                                          793,400
31/12/2035	$        32,000	$                   32,600	$                         600	$                 6,000	$                                          794,000
30/6/2036	$        32,000	$                   32,600	$                         600	$                 5,400	$                                          794,600
31/12/2036	$        32,000	$                   32,600	$                         600	$                 4,800	$                                          795,200
30/6/2037	$        32,000	$                   32,600	$                         600	$                 4,200	$                                          795,800
31/12/2037	$        32,000	$                   32,600	$                         600	$                 3,600	$                                          796,400
30/6/2038	$        32,000	$                   32,600	$                         600	$                 3,000	$                                          797,000
31/12/2038	$        32,000	$                   32,600	$                         600	$                 2,400	$                                          797,600
30/6/2039	$        32,000	$                   32,600	$                         600	$                 1,800	$                                          798,200
31/12/2039	$        32,000	$                   32,600	$                         600	$                 1,200	$                                          798,800
30/6/2040	$        32,000	$                   32,600	$                         600	$                    600	$                                          799,400
31/12/2040	$        32,000	$                   32,600	$                         600	$                        -	$                                          800,000
Total		$             1,304,000