Q: On January 1, 2007, Nott Co. sold to Day Corp. $400,000 of its 10% bonds for $354,118 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Nott report as interest expense for the six months ended June 30, 2007?
Since the carrying value of the bond is $354,118 at 12%, the interest expense would be 354,118x.12 or $42,494.
But this would be for the entire year... so for each month it would be 42,292/12 = 3541.18 per month.
The question states that the interest payable is semiannually on Jan. 1 and July 1 and asks for the interest expense for June.
So am I assuming that no interest is expensed for the first month and so i am only really counting on 5 months?
5x3541 = 17,706 which would be answer a) but
6x3541 = 21,247 which would be answer c)
what do you guys think?