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Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020

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saqib097

Answer:

Kenoly uses the effective-interest method, the amount of interest to be recorded in the financial statements on October 31, 2020 is $18,750.

Explanation:

Bond cost         562500

Bond discount             9%

Bond years              10

Bond yield             10%

Discount (June 30 - Oct. 30) = 9% * 4/12 = 0.033

Interest (June 30 - Oct. 30) = 0.033[ 10% * 4/12]  

Interest Expense = $18,750

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