Question

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uestion 8 10 points Save A Livermore Company sold $1,000,000 of 6%, 10-year bonds at 96 on January 1, 2021. The bonds were dated January 1, 2021 and pay interest on June 30 and December 31. If Livermore uses the straight-line amortization, what would the total interest expense recognized for the bond issue over its full term? (Do not add dollar sign; do not add comma by yourself to your amount round the answer to the whole number)

Answer 1

Par value of bonds = $1,000,000

Issue price =96

Cash received from issuance of bonds = Par value of bonds x Issue price

= 1,000,000 x 96%

= $960,000

Discount on issue of bonds = Par value of bonds- Cash received from issuance of bonds

= 1,000,000-960,000

= $40,000

Semi annual interest payment = Par value of bonds x Interest rate x 6/12

= 1,000,000 x 6% x 6/12

= $30,000

Total interest payment during the life of bonds = Semi annual interest payment x Number of semi annual interest payment period

= 30,000 x 20

= $600,000

Total interest expense = Total interest payment during the life of bonds+ Discount on bonds payable

= 600,000+40,000

= $640,000

Kindly comment if you need further assistance.

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