Question

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2021. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment Cash Effective Interest Decrease in Balance Outstanding Balance 8,640,967 1 300,000 345,639 45,639 8,686,606 2 300,000 347,464 47,464 8,734,070 3 300,000 349,363 49,363 8,783,433 4 300,000
What is the book value of the bonds as of December 31, 2022?
a. $600,000
b. $700,700
c. $100,700

Answer 1

Answer:

b. $700,700

Explanation:

Correct word "What is the interest expense on the bonds for the year ended December 31, 2022? Multiple Choice: a. $600,000 b. $700,700 c. $100,700"

Outstanding balance at the beginning = $8,640,967

Interest for the first half-year = $345,639. Effective half-yearly interest rate = $345,639 / $8,640,967 = 0.04 = 4%

Interest for the fourth period (Second half of the year 2022) = Balance outstanding during the half-year beginning * 4% = $8,783,433 * 4% = $351,337

Total Interest for 2022 = Interest for first half + Interest for second half

Total Interest for 2022 = $349,363 + $351,337

Total Interest for 2022 = $700,700