Answer :
Answer:
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