To calculate the bond interest expense for the year ended December 31, 2020, we need to determine the annual interest payment and the amortization of the bond premium.
1. Annual interest payment:
The bonds have a face value of $50,000 and a coupon rate of 10%. This means that the annual interest payment is $50,000 x 10% = $5,000.
2. Amortization of bond premium:
The bonds were sold for $54,000, which is a premium of $54,000 - $50,000 = $4,000.
Since the bonds mature on December 31, 2029, the total number of interest payment periods is 20 (10 years x 2 semiannual payments).
The annual amortization of the bond premium is $4,000 / 20 = $200.
3. Bond interest expense for the year ended December 31, 2020:
Since the bonds pay interest semiannually, there are two interest payment periods in 2020.
The bond interest expense for each semiannual period is $5,000 / 2 = $2,500.
Therefore, the bond interest expense for the year ended December 31, 2020, is $2,500 + $2,500 = $5,000.
Therefore, the correct answer is $5,000.
On January 1, 2020, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $54,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2029. Baker records straight-line amortization of the bond premium. The bond interest expense for the year ended December 31, 2020, is
$2,500
$2,700
$4,600
$5,000
1 answer
1 answer