Question

A company issued $300,000, 10-year, 10 percent bonds at 105. What is the total amount of interest expense that will be recorded over the life of these bonds

Answer 1

$285,000

Step-by-step explanation:

Interest paid in cash = $300,000 *10%*10 years

Interest paid in cash = $300,000

Premium received = $300,000/100*5

Premium received = $15,000

Net interest expense in life of bonds = Interest paid in cash - Premium received

Net interest expense in life of bonds = $300,000 - $15,000

Net interest expense in life of bonds = $285,000