On January 1 of the current year, Monarch Gaming Company issues 4-year , $600,00

Question

On January 1 of the current year, Monarch Gaming Company issues 4-year, $600,000 face value, 4% face rate, coupon bonds which pay interest semi-annually each June 30 and each December 31. On January 1 of the current year, when the bonds are issued to the public, the market rate of interest on similar bonds is 6%.


Independent to your solution for the previous question (question #6), assume the issuance price was $505,000, with all other information the same.

What is the amount of interest expense which should be recorded when the first semi-annual cash payment is made on June 30 of the current year?

a. $15,150

b. $13,600

c. $12,000

d. $10,100

Explanation / Answer

The option "C" is coorrect answer.
because the coupon rate always paid on the basis of face value of bond.
in our problem the face value of the bond is $600000 , and
issuance cost is $ 505000
whenn we are going to be caliculate interest payment on bods we should consider only face value ,not else.
caliculation:
face value *interest rate
here interest rate 4% for annum,
for 6 months it is 2% (because the bond interest paid semi-annually)
=$600000*2%
=$12000

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