Interest Expense

Question 1

Fundamentals

Answer 1

Other Exp, IS, Dr

Question 2

Computation of Annual Bond Interest Expense

Answer 2

Interest Expense = Interest paid (payable) + Amortization of discount (OR - amortization of discount)

Amortization of Discount: Straight-line: Bond Discount (Premium) / # of interest periods

Effective Interest Amortization (preferred method): Bond Interest Expense: CV of bonds at Beg. of period x Effective-interest rate

Effective Interest Amortization (preferred method): Bond Interest Paid: Face V of bonds (contractual interest rate)