1.The Marx Company issued $92,000 of 9% bonds on April 1 of the current year at

Question

1.The Marx Company issued $92,000 of 9% bonds on April 1 of the current year at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, and mature in five years, on January 1. Determine the total interest expense related to these bonds for the current year ending on December 31.

2.The Merchant Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Merchant should record interest expense (round to the nearest dollar) of

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Explanation / Answer

1.

Company issued $92000

Interest 9%

Interest expense $8280 for 12 months

Interest expense $6210.

2. Bonds $117205

Interest rate 12%

Payment mode semiannually

Interest expense $7032.30 ($117205 * 12% *1/2)

3. Answer : $62264

$66000 * 0.94340 = $62264.4.

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