On March 1, Wag City issued $1,000,000, ten-year, 6% general obligation bonds at par with no bond
issue costs?

Question

The bonds pay interest September1 and March1. What amount of interest expense and

bond interest payable should Wag report in its government-wide financial statements at the close of the

fiscal year on December31?

a. Interest expense, $50,000; interest payable, $20,000.

b. Interest expense, $50,000; interest payable, $0.

c. Interest expense, $60,000; interest payable, $10,000.

d. Interest expense, $30,000; interest payable, $0.

Falah Musthafa · Answer

Interest Expense for10 months from March to December would be $50,000/- (i.e $1,000,000 *6% *10/12).

Interest Payable would be for four months from September to December $20,000/- (assuming the company fully paid the interest due on1st September).

So 'a' is the right answer.