Hi,

I know the answer to the question below but don't know why 20 payments are used to solve the problem. Can you help explain only this part of the problem?

Problem:

Enviro Company issues 6.00%, 10-year bonds with a par value of $340,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 3.00%, which implies a selling price of 125 5/8. The straight-line method is used to allocate interest expense.

What total amount of bond interest expense will be recognized over the life of these bonds?

To Solve:

Bonds interest expense = cash interest paid - bond premium

$340,000 x 6% contract rate / 2 payments per year = $10,200

(20 payments x $10,200) - $87,125 ($340,000 par value - $427,125 cash proceeds) = $204,000 - $87125 = $116,875 (total repayments $204,000 + $340000 = $544,000)