On January 1, 2022, Blossom Company sold to Flay Corporation $401000 of its 8% bonds for $355003 to yield 10%. Interest is payable semiannually on January 1 and July 1. What amount should Blossom report as interest expense for the six months ended June 30, 2022. (The effective-interest method of amortization is being used.)-17821-14262-17750-20050
17750355003 x 10% x (6/12) = 17750
To calculate the interest expense using the effective-interest method of amortization, we first need to determine the bond discount and the bond interest expense for the six months ended June 30, 2022.
The bond discount is the difference between the face value of the bonds ($401,000) and the amount they were sold for ($355,003):
Bond discount = $401,000 – $355,003 = $45,997
Next, we need to calculate the bond interest expense for the six-month period. We can do this by multiplying the carrying value of the bonds at the beginning of the period by the effective interest rate of 10%:
Bond interest expense = Carrying value at beginning of period x Effective interest rate
Carrying value at beginning of period = $355,003 + $45,997 = $401,000
Effective interest rate for six months = 10% / 2 = 5%
Bond interest expense = $401,000 x 5% = $20,050
Therefore, the amount that Blossom Company should report as interest expense for the six months ended June 30, 2022, is $20,050.
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