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On June 30, 2017, the Company issued $4,100,000 face value of 13%, 20-year bonds at $4,408,441, a yield of 12%. Ivanhoe uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

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On June 30, 2017, the Company issued $4,100,000 face value of 13%, 20-year bonds at $4,408,441, a yield of 12%. Ivanhoe uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Explanation / Answer

in balance sheet instead of interest payable use book value of bonds payable total cost of borrowing over the life of the bond total interest to be paid for the bond (4,100,000*13%*20)= 10660000 less premium -308,441 total cost of borrowing over the life of the bond 10351559 the total bond interest expense will be same ,regardless of the method used

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