Greenwood Company issued 150 $1,000, 6% bonds that mature in ten years. Interest is paid annually. The bonds were sold at 103 ½, and Greenwood amortizes bond discounts and premiums using the straight-line method.Required:Calculate the amount of annual interest expense for Greenwood Co.
What will be an ideal response?
$8,475 interest expense
(150 × $1,000) × 0.035 = $5,250 premium
$5,250/10 years = $525 amortization per year
$150,000 × .06 = $9,000 interest payment
$9,000 interest payment - $525 premium amortization = $8,475 interest expense
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