On dec. 31, 2010 a corporation issued 200,000 face value 12% bonds that mature 10 years from the date of issue. The issue price was 97. if the firm uses the straight line method of amortization interest expense for 2011 wll be reported at
To determine the interest expense for 2011 using the straight-line method of amortization, you need to consider a few factors.
The first thing to determine is the amount of interest paid annually based on the face value of the bonds and the stated interest rate. In this case, the face value of the bonds is $200,000, and the interest rate is 12%.
To calculate the annual interest paid, multiply the face value by the interest rate:
$200,000 * 12% = $24,000
Since the issue price was $97, this means that the bonds were sold at a discount. To amortize this discount over the remaining life of the bonds, you need to determine the total discount amount and divide it equally over the 10-year period.
The total discount in this case can be calculated by finding the difference between the face value and the issue price:
$200,000 - $97 = $199,903
To find the annual amortization expense, divide the total discount by the number of years until maturity, which is 10 in this case:
$199,903 / 10 years = $19,990.30
Finally, to find the interest expense for 2011, you need to add the annual amortization expense to the interest paid annually:
$24,000 + $19,990.30 = $43,990.30
Therefore, the interest expense for 2011 will be reported as $43,990.30.