McCoy Corporation issued $100,000 of 6.5% 10-years bonds. The bond are dated and
ID: 2454634 • Letter: M
Question
McCoy Corporation issued $100,000 of 6.5% 10-years bonds. The bond are dated and sold on January 1, 2015. Interest payment dates are January 1 and July 1. The bonds are issued for $96,447 to yield the market interest rate of 7%. McCoy Corporation uses the effective-interest method. The interest expenses that McCoy Corporation will record on July 1, 2015 is $3,376 and the interest payment is $3,250. What is the amount of discount amortization that McCoy Corporation will record on July 1, 2015 the first semiannual interest payment data?Explanation / Answer
When a bod is issued at discount, the amount of the bond discount must be amortized to interest expense over the life of the bond.
Thus amount of discoun to be amortized = Interest expense at market rate - Interest payment
= $3376 - $3250
= $126
Therefore answer will be (A) 126