On january 1, 2021, lyle's limeade issues 3%, 20-year bonds with a face amount of $80,000 for $69,058, priced to yield 4%. interest is paid semiannually. what amount of interest expense will be recorded in the december 31, 2021, annual income statement?

The interest expense of $2,765.94 is recorded in the annual income statement.

Explanation:

As the interest is paid semiannually, so the first interest will be in June, it is computed by using the method of effective interest rate :

Interest expense = Amount × Rate / 2

=$69,058 × 0.04 / 2

= $1,381.16

Now, Computing the amount of the above interest expense that amortizes the bond discount as:

= Face value × issued at 3% / 2

= 80,000× 0.03 / 2

= $1,200

= $1,381.16 - $1,200

= $181.16

The difference is added to the carrying value of the bond which is:

= Difference amount + Carrying amount

= $181.16+ $69,058

= $69,239.16

The interest for 6 months ending on December 31 is computed as:

= $69,239.16 ×0.04 / 2

= $1,384.78

Total interest expense at 12/31/12 would be:

= June 30 expense + December 31 expense

= $1,381.16 + $1,384.78

= $2,765.94

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