Using the straight-line method, the semiannual bond interest expense of a 12%, $800,000, 10-year bond issued at 95 is:

A) $96,000.
B) $50,000.
C) $46,000.
D) $94,000.

Question

Using the straight-line method, the semiannual bond interest expense of a 12%, $800,000, 10-year bond issued at 95 is:A)  $96,000.B)  $50,000.C)  $46,000.D)  $94,000.

ESTEBAN GONZALEZ JR · Accepted Answer

Final Answer : B, Explanation :  The semiannual bond interest expense is calculated by first determining the annual interest payment, which is 12% of $800,000 = $96,000. Since the bond was issued at 95, it was issued at a discount (95% of $800,000 = $760,000). The straight-line method spreads the discount or premium evenly over the life of the bond. The total discount is $800,000 - $760,000 = $40,000. Over 10 years, or 20 semiannual periods, this amounts to $2,000 per period. Therefore, the semiannual interest expense is the semiannual interest payment plus the amortization of the discount: ($96,000 / 2) + $2,000 = $50,000.

Using the straight-line method, the semiannual bond interest expense of a 12%, $800,000, 10-year bond issued at 95 is:

A) $96,000.
B) $50,000.
C) $46,000.
D) $94,000.

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