Final answer:
Interest expense using the straight-line amortization method for a bond issued at a discount is calculated by adding the annual cash interest to the annual amortization of the bond discount. For Alan Smith Antiques' issued bonds at 7%, the correct interest expense per year is $65,664.
Step-by-step explanation:
The student is asking about the calculation of interest expense using the straight-line amortization method for a bond issued at a discount. Alan Smith Antiques issued its 7%, 20-year bonds payable at a price of $846,720, with a face value of $900,000. The bond discount is the difference between the face value and the issued price, which is $900,000 - $846,720 = $53,280. This discount is amortized straight-line over the 20-year life of the bond, resulting in an annual amortization of $53,280 / 20 years = $2,664. The annual cash interest paid is 7% of the face value, which is $900,000 * 0.07 = $63,000. Therefore, the interest expense for each year is the cash interest paid plus the annual amortization of the discount, which is $63,000 + $2,664 = $65,664.