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A company issues $25500000,5
A company issues $25500000,5.8%, 20-year bonds to yield 6% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24910577. Using effective-interest amortization, how much interest expense will be recognized in 2020? $739500 $1494869 $1494662 O $1479000
Expert Solution
B.$1494869.
working:
The following amortization schedule will help us in knowing the interest expense for the year 2020.
| opening balance | interest @6 % for 6 months | cash paid towards interest | amortization of discount(interest - cash paid) | closing balance (opening balance +amortization) |
| 24910577 | (24910577*6%*6/12)=>747,317.31 | (25500000*5.8%*6/12)=>739,500 | (747,317.31-739,500)=>7,817.31 | (24910577+7817.31)=>24918394.30 |
| 24918394.30 | (24918394.30*6%*6/12)=>747,551.83 | (25500000*5.8%*6/12)=>739,500 |
(747,551.83-739,500)=>8,051.83 |
(24918394.30+8051.83)=>24,926446.10 |
| Interest expense for 2020 =>(747,317.31+747,551.83)=>1,494,869 |
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