Acompany issued 10-year, 7% bonds with a par value of $100,000. the company received $96,526 for the bonds. using the straight-line method, the amount of interest expense for the first semiannual interest period is: a. $3,326.b. $3,500.00.c. $3,673.70.d. $7,000.00.e. $7,347.40.

The correct answer is c) $3,673.70

Explanation:

First, we need to find the discount amount

Formula:

Par Value - Market Price = Discount amount

$100,000 Par value - $96,526 market price

= $3,474 Discount Amount

We need to find the Semi-Annual Discount Amount

Formula:

The Discount Amount ÷ (n x 2)

"n= number of years"

=$3,474 Discount Amount ÷ (10 x 2)

= $3,474 ÷ (20)

= $173.7 Semi-Annual Discount Amount

For the next step, we need to find the Semi-Annual Coupon Interest Amount

Formula:

Par Value * Coupon Rate ÷ 2

= ($100,000 x 0.07) ÷ 2

= $7,000 ÷ 2

= $3,500  Semi-Annual Coupon Interest Amount

Finally, we find the Interest Expense for first semi-annual Interest amount

Formula:

Semi-Annual Coupon Interest Amount + Semi-Annual Discount Amount

= $173.70 + $3,500

= $3,673.7

The interest expense for the first Semi annual interest amount is $3,673.7.

the answer is a.

by: nicholas dooley