Question

On January 1, 2019, a company issued $401,600 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $417,153 based on a 10% market interest rate. The effective-interest method of amortization is used. Rounding all calculations to the nearest whole dollar, what is the interest expense for the six-month period ending June 30, 2019?

Answer 1

Answer:

$ 20,857.65  

Explanation:

The interest expense for the first interest expense is cash proceeds from the bond issuance multiplied by the 10% market interest rate adjusted for semiannual amount by multiplying by 6 months and dividing by 12 months.

Interest expense=cash proceeds*market interest rate*6/12

cash proceeds is $417,153

market interest rate is 10%

interest expense for the six-month period ending June 30 2019=$417,153*10%*6/12=$ 20,857.65  

The first interest expense is closest to $ 20,857.65