Question

11) Discount-Mart issues $10 million in bonds on January 1, 2018. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds: Increase in Carrying Value Cash Paid Date Interest Expense Carrying Value $8,640,967 8,686,606 8,734,070 8,783,433 8,834,770 1/1/2018 6/30/2018 12/31/2018 6/30/2019 12/31/2019 $300,000$345,639 300,000 300,000 300,000 $45,639 47,464 49,363 51,337 347,464 349,363 351,337 What is the interest expense on the bonds in 2018? D) $345,639. C) $693,103 B) $347,404 A) $600,000.

Answer 1

Answer is $693,103

Interest Expense on June 30, 2018 = $345,639
Interest Expense on December 31, 2018 = $347,464

Interest Expense in 2018 = Interest Expense on June 30, 2018 + Interest Expense on December 31, 2018
Interest Expense in 2018 = $345,639 + $347,464
Interest Expense in 2018 = $693,103

Interest expense on the bonds is 2018 is $693,103