Question

Livermore Company sold $880,000 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 = $880,000

Issue price =96

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

= 880,000 x 96%

= $844,800

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

= 880,000-844,800

= $35,200

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

= 880,000 x 6% x 6/12

= $26,400

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

= 26,400 x 20

= $528,000

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

= 528,000+35,200

= $563,200

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