Question

Anthropology Corp. issued 6-year, 8% bonds with a face value of $850,000 on October 1, 2021. The bonds are dated October 1, 2021. Interest is paid semi-annually on Aptil 1 and October 1. The market rate of interest at issuance is 6%. This fiscal year end is Nocember 30th. The company uses the straight-line amortization method. What amount of interest expense is reported in the fiscal year ending in November 2021?

Answer 1

8983

Step-by-step explanation:

Total Premium (934609-850000) 84609

Divide: Periods total 12

Premium amortized each period 7050.75

Interest expense for Nov21 (Two months)

Cash Interest payable (850000*8%*2/12) 11333.33

Less: Premium amortized (7050.75*2/6) 2350.25

Interest expense for year ending 30.11.21 8983.08

Total Premium (934609-850000) 84609

Divide: Periods total 12

Premium amortized each period 7050.75

Interest expense for Nov21 (Two months)

Cash Interest payable (850000*8%*2/12) 11333.33

Less: Premium amortized (7050.75*2/6) 2350.25

Interest expense for year ending 30.11.21 8983.08

Answer is $8983