XYZ Corp issued $600,000 of 9% , 10-year bonds on June 30,2020, for $562,500. This price provided a yield of 10% on the bonds. I

Question

3 years ago

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XYZ Corp issued $600,000 of 9% , 10-year bonds on June 30,2020, for $562,500. This price provided a yield of 10% on the bonds. I

nterest is payable semiannually on December 31 and June 30. If XYZ uses the effective- interest method , what is the amount of interest expense that has accrued if the accounting period ends on October 31, 2020.
a. $27,000
b. $28,125
c. $18, 750
d. $20,000

Business

1 answer:

Rom4ik [11] · Answer 1 · 2022-03-04T01:37:44+03:00

Answer:

c. $18, 750

Explanation:

The computation of the amount of interest expense i.e. accrued is shown below:

= Issued amount × yield on the bonds × given months ÷ total number of months in a year

= $562,500 × 10% × 4 months ÷ 12 months

= $18,750

The 4 months is calculated from July 1 to October 31

Hence, the correct option is c. $18,750