7. On March 1, 2012, Ramon Company issued $1,000,000 face value of 9%,20-year bo

Question

7. On March 1, 2012, Ramon Company issued $1,000,000 face value of 9%,20-year bonds for cash of $830,688, a price that yields 1 1%. The bonds mature on March 1, 2032, and call f or semiannual interest payments. Using the effective interest rate method, interest expense for the six months ending on August 31, 2012, is: A) $37,380 B) $45,000 C) $45,688 D) $48,386 8, On February 1, 2012, Simon Com pany issued $100,000 face value of 9%,15-year bonds for cash of $92,3 14, a price that yields 10%. The bonds mature on February 1, 2021, and call for semiannual interest payments. Using the effective interest rate method, interest expense for the six months ending on August 1,2012, is (round to the nearest dollar): A) $4,500 B) $4,616 C) $4,154 D) $5,000 ll nf the following methods except:

Explanation / Answer

Answer 7 Interest Expense for the six months ending on Aug.31,2012 Carrying value of bond as on March 1,2012 $830,688 x Semi annual Yield % 5.50% Interest Expense as on Aug.31,2012 $45,688 The answer is Option C. Answer 8 Interest Expense for the six months ending on Aug.1,2012 Carrying value of bond as on Feb 1,2012 $92,314 x Semi annual Yield % 5.00% Interest Expense as on Aug.1,2012 $4,616 The answer is Option B.

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