Asked by Shannon Flynn on Jul 24, 2024
Verified
Refer to Exhibit 14-6.Interest expense for 2012 will be
A) $1, 750
B) $1, 800
C) $1, 850
D) $1, 900
Straight-Line Amortization
A method of evenly allocating the cost of an intangible asset over its useful life.
Callable
A term used to describe a financial security that the issuer can redeem prematurely under specific conditions.
- Discern and apply accurate amortization strategies for bond discounts or premiums.
Verified Answer
SD
Stephanie DaniellaJul 25, 2024
Final Answer :
C
Explanation :
Interest expense for 2012 includes interest up to the recall date (April 1, 2012) plus amortization of the bond discount. The annual interest is $7,000 (7% of $100,000), and for three months (January 1 to April 1), it is $1,750. The bond was issued at 98, meaning a $2,000 discount ($100,000 - $98,000), which is amortized over 5 years, resulting in $400 annual amortization. For three months, this is $100. Therefore, the total interest expense for 2012 is $1,750 (interest) + $100 (amortization) = $1,850.
Learning Objectives
- Discern and apply accurate amortization strategies for bond discounts or premiums.