Question

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much interest expense will Debtor Corporation report on its income statement for the year ended December 31, 2018?

Answer 1

Answer:$163,200

Step-by-step explanation:

Value of bond @96=$2,000,000/100*96

= 1,920,000.00

Interest Expenses= bond market rate multiply by bond issued value

= 1,920,000* 0.85%