# Eli Inc. issued $100,000 of 8% annual, 5-year bonds for$103,000. What is the total amount of interest expense over the life of the bonds?

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 3PA
Textbook Problem
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## Eli Inc. issued $100,000 of 8% annual, 5-year bonds for$103,000. What is the total amount of interest expense over the life of the bonds?

To determine

Concept introduction:

Bonds:

are defined as debt instruments which are usually issued by the company that borrows to its lenders. They are issued at a rate of interest that is specified and for a specified period of time. The bondholders receive a fixed rate of interest on the bonds and the repayment of the bonds is made at the maturity date.

Simple interest:

Simple interest is the amount of interest paid on the principal amount using a fixed interest rate. The formula to calculate the Simple interest is as follows:

Simple Interest = Principal amount x Interest rate x Period

To calculate:

The total amount of interest expense over the life of the bonds.

### Explanation of Solution

The total amount of interest expense over the life of the bonds is calculated as follows:

Interest on Bonds = Face value of Bonds x Stated Interest Rate x Number of years

= \$100,

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