A corporation issues $2,200,000 par value, 8%, 20-year bonds, interest payable annually for $2,000,000 in cash,...
A corporation issues $2,200,000 par value, 8%, 20-year bonds, interest payable annually for $2,000,000 in cash, At that time the market rate of interest is 9%. The effective interest method is adopted for the amortization of any bond discount or premium. Which of the following is the correct statement in order to record year one interest expense?
A. Debit Interest Expense for $198,000.
B. Debit Interest Expense for $176,000.
C. Debit Interest Expense for $180,000.
D. Debit Interest Expense for $160,000.
Homework Answers
Answer)
My answer is option d.
Here the interest expense is $160000 (i.e $2000000×8%). It will be the official interest amount that the company pays on such bonds.
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