On January 1, 2018 Legion Company sold $200,000 of 10%, ten-year bonds. Interest

Question

On January 1, 2018 Legion Company sold $200,000 of 10%, ten-year bonds. Interest payable semiannually in June 30 and December 31 the bonds were sold for $177,000, priced to yield 12. Legion records interest at the effective rate.

Legion shoud report bond interest expense for the six months ended June 30, 2018, in the amount of:

A) $8,850

B) $10,000

C) $10,620

D) $12,000

Legion should pay cash interest for the six months ended June 30, 2018, in the amount of:

A) $8,850

B) $10,000

C) $10,620

D) $12,000

Explanation / Answer

1. Interest expense recorded by legion for the six month ended June 30, 2018 is:

177,000*12%*6/12 = $10,620.

Answer is C.

2. Interest paid by legion for the six month ended June 30, 2018 is

200,000*10%*6/12 = 10,000

So, answer is B.

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