Question

A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2017? Group of answer choices $1,960,623 $975,000 $1,960,415 $1,950,000

Answer 1

Answer:

• $1,960,415

Explanation:

• The bond was issued under this conditions:

$25,000,000     7.8%

Period   Capital   Interest  

2017.I  $25,000.000  $ 975.000

2017.II  $25,000.000  $ 975.000

• But the market accept under this conditions.

$24,505,180     8%

Period   Capital    Interest  

2017.I  $24,505,181  $ 980,207  

2017.II  $24,505,181  $ 980,207  $1,960,414  

• The company recognized interes by $1,960,414