A company issued 6.0%, 5-year bonds with a par value of $170,000. The market rat

Question

A company issued 6.0%, 5-year bonds with a par value of $170,000. The market rate when the bonds were issued was 7.0%. The company received $162,930.89 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

Multiple Choice

$11,426.25.

$5,702.58.

$10,200.00.

$5,723.67.

$5,100.00.

A company issued 6-year, 8% bonds with a par value of $1,050,000. The market rate when the bonds were issued was 7.5%. The company received $1,060,500 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

$41,125.

$83,125.

$42,000.

$42,875.

$84,000.

A company issued 5-year, 10.00% bonds with a par value of $124,000. The market rate when the bonds were issued was 9.50%. The company received $126,609 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

$11,964.93.

$6,013.93.

$6,200.00.

$3,100.00.

$12,400.00.

Explanation / Answer

1) Difference in interest expense and interest paid = (162930.89*3.5%-170000*3%) = 602.58

Second interest expense = (162930.89+602.58*3.5%) = 5723.67

so answer is d) $5723.67

2) Interest paid = (1050000*4%) = 42000

Premium on bonds amortization = (1060500-1050000/12) = 875

Interest expense = 42000-875 = 41125

so answer is a) $41125

3) Interest expense for the first semiannual interest = (126609*9.5%*6/12) = 6013.93

so answer is b) $6013.93

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