On January 1 of the current year, Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is

A) $10,900
B) $18,200
C) $21,800
D) $29,000

Question

Logan Van Roy · Accepted Answer

Final Answer : C, Explanation :  Discount = Face Value - Selling PriceDiscount = $200,000 - $191,000Discount = $9,000Amortization per year = Discount / Number of YearsAmortization per year = $9,000 / 5Amortization per year = $1,800Since interest is paid semiannually, the bond interest expense for the year ended December 31 is calculated as follows:First six months:Bond interest expense = Face Value x Annual Interest Rate x TimeBond interest expense = $200,000 x 10% x 6/12Bond interest expense = $10,000Less: Bond amortization for the first six monthsBond amortization = Amortization per year / 2Bond amortization = $1,800 / 2Bond amortization = $900Net bond interest expense for the first six months = $10,000 - $900Net bond interest expense for the first six months = $9,100Last six months:Bond interest expense = Face Value x Annual Interest Rate x TimeBond interest expense = $200,000 x 10% x 6/12Bond interest expense = $10,000Less: Bond amortization for the last six monthsBond amortization = Amortization per year / 2Bond amortization = $1,800 / 2Bond amortization = $900Net bond interest expense for the last six months = $10,000 - $900Net bond interest expense for the last six months = $9,100Total bond interest expense for the year ended December 31 = Net bond interest expense for the first six months + Net bond interest expense for the last six monthsTotal bond interest expense for the year ended December 31 = $9,100 + $9,100Total bond interest expense for the year ended December 31 = $21,800

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