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Franklin Corporation issues $88,000, 10%, five-year bonds on January 1 for $92,000. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

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Answer:

$4,000

Explanation:

The computation of interest expense to be recognized on July 1 is shown below:-

Here the interest is paid in semi-annually,

so, the interest rate per period= 10% ÷ 2 = 5%

and the number of periods = 5 × 2 = 10

Bond premium = Five year bonds - Issued amount

= $92,000 - $88,000

= $4,000

Bond premium amortization per period = Bond premium ÷ Number of periods

= $4,000 ÷ 10

= $400

Interest expense to be recognized on July 1 = Issued amount × Interest rate per period) - Bond premium amortization per period

= ($88,000 × 5%) - $400

= $4,000

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