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38) Trent Corp. issued $800,000 of 8%, 5-year bonds at 102 on January 1, 2017. The...

38) Trent Corp. issued $800,000 of 8%, 5-year bonds at 102 on January 1, 2017. The straight-line method of amortization is used and the bonds pay interest annually on January 1. The amount of bond interest expense that Trent should report on its December 31, 2017, income statement is

Select one:

a. $60,800.

b. $67,200.

c. $65,280.

d. $64,000.

Solutions

Expert Solution

Correct answer----$60,800

Bonds are issued at Premium. The amount of interest expense will be cash paid for interest minus premium to be amortized in the year using Straight line method.

Period Cash payment (Credit) Interest Expense (Debit) Discount on bond Premium on bond balance Bonds payable Carrying Value
At issue $ 16,000 $    8,16,000
Year 2017 end $ 64,000 $      60,800 $       3,200 $ 12,800 $    8,12,800
Year 2018 end $ 64,000 $      60,800 $       3,200 $    9,600 $    8,09,600
Year 2019 end $ 64,000 $      60,800 $       3,200 $    6,400 $    8,06,400
Year 2020 end $ 64,000 $      60,800 $       3,200 $    3,200 $    8,03,200
Year 2021 end $ 64,000 $      60,800 $       3,200 $           -   $    8,00,000

Year 2017 interest expense = $64000-3200=$60800

ekkarill92 answered 1 year ago
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