Question

The Levi Company issued $200,000 of 12% bonds on January 1 of the current year at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, and mature in five years, on January 1. The total interest expense related to these bonds for the current year ending on December 31 is

a) $12,000
b) $2,000
c) $24,000
d) $6,000

Answer 1

C) $24,000

Step-by-step explanation:

Levi Company will pay a semiannual coupon on July 1, year 1 and January 1, year 2. Both coupons correspond to interest expense for year 1.

Each coupon payment will total $12,000 (= $200,000 x 12% x (6 / 12)). So the total interest expense for year 1 will be $24,000 (= $12,000 x 2).