his Test:40 pts possible E Question Help Honeys ble Company sell $450 000 of 10%

Question

his Test:40 pts possible E Question Help Honeys ble Company sell $450 000 of 10% 20 year price of the bond is $319,655. Honeysuckle Compary uses the to the nearest whole number.) bonds for 710344 on April 1,2016. The market rate of irterest on that day is 14 5%. Interest is paid each year on April 1 The ssue amortization method. The amount of interest expense for each year will be (Intermediary calculations are O A. $45,000. OB. $22,358. OC. $51,517 O D. $71,767, O E. none of these. Click to select your answer 80 10 912. F5 F6 F7

Explanation / Answer

Interest Exp = Cash Interest + Discount Ammortisation

Cash Interest = 450000 * 10% = 45000

Discount = FV - Issue Price

      = 450000 - 319655 = 130345

Ammortisation of Discount using straight line method in 20 years

i.e Ammortisation amt of 1 yr = 130345/20 = 6517

Interest Exp = 45000 + 6517 = 51517

Option C is correct

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