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Arada [10]
3 years ago
10

Issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2018. Interest is paid on June 30 and December 31. The proceed

s from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2018?
A. $780,000
B. $784,249
C. $784,166
D. $390,000
Business
1 answer:
igomit [66]3 years ago
8 0

Answer:

B. $784,249

Explanation:

The effective interest amortization is an accounting practice used for discounting a bond. This method isused for bonds sold at a discount; the amount of the bond discount is amortised as interest expense over the bond's life

Interest expenses for 6 months from Jan 1st to Jun 30th is $392,083 = $9,802,072* 8%/2

Amortization of Discount is $2,083= $9,802,072* 8%/2 - 10,000,000*7.8%,/2

Carry Amount of Bond on June 30 $9,804,155= bond proceed of $9,802,072 + Amortization of Discount is $2,083

Interest expenses for 6 months from Jul 1st to Dec 31st is  $392,166 = Carry amount of Bond $9,804,155 x effective rate 8%/2

Total interest expense will be recognized in 2018 is $784,249 = $392,083 + $392,166

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In the information provided, the respondents were selected from a group of people who on a balance of probability were already inclined to decline because it was a list of dissatisfied customers. The chances of them declining to respond or responding with a negative were higher than the chances of them indicating that they would buy and this defeats the purpose of the research. The research ought to have also included a sample of respondents who didn't have the product, who had enjoyed the services of the company and were content, those who didn't even know what the product did until they got the survey.

That way holistic information can be obtained from the research about how different sets of people will react and not just those who are already dissatisfied with the company's product(s).

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