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saveliy_v [14]
3 years ago
10

ABC Company received $9,631 for its 5-year, 10% bonds with a total face value of $10,000. The market rate of interest was 11%. T

he bonds pay interest annually on December 31. How much interest expense will ABC Corporation record on the first annual interest payment date using the effective-interest method?A. $1,059
B. $1,000
C. $1,074
D. $963.10
Business
2 answers:
Basile [38]3 years ago
8 0

Answer:

A. $1,059

Explanation:

Interest payment and interest expense of the bond issued on discount is different. The difference of both of these values is the amortization of discount on the bond, which is added to carrying value of the bond each year to make the carrying value equals to face value at maturity date.

Interest expense using effective interest method is calculated by multiplying the market interest rate to the net carrying value of the bond.

Carrying value of the bond in 1 st year = $9,631

Market Rate = 11%

Interest expense = $9,631 x 11% = $1059.41

Anastaziya [24]3 years ago
5 0

Answer:

The correct answer is Option A.

Explanation:

The effective interest rate (EIR) method is used when a bond is purchased at a discount or premium.

In the case of the question, the bond was purchased at $9,631 with a face value of $10,000. Interest expense is calculated as the bond price multiplied by the market rate, i.e. $9,631  x 11% = $1,059.41.

Therefore, ABC Company would record $1,059 on the first annual interest payment date using the effective-interest method.

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Why is it beneficial for businesses to be stationed in cities?
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3 years ago
What is GDP of a country
Arlecino [84]

Answer:

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Explanation:

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6 0
2 years ago
Assume that Lucas's marginal tax rate is 32 percent and his tax rate on dividends is 16 percent. If a dividend-paying stock (wit
kipiarov [429]

Answer:

The correct answer to the problem is 7.728%

Explanation:

Lucas marginal tax rate = 32 percent

Tax rate on dividends = 16 percent

Dividend yield of a dividend-paying stock (with no growth potential) = 9.20 percent.

To determine the interest rate a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash flow perspective =

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3 0
2 years ago
For each situation, prepare the appropriate journal entry for the redemption of the bonds.
Arada [10]

Answer and Explanation:

The journal entries are given below:

On Apr. 30

Bonds payable $124,000  

Loss on redemption of bonds( bal fig)   $18,228  

          Discount on Bonds payable($124,000 - $111,972) $12,028

          Cash ($124,000 × 1.05) 1,30,200

(Being redemption of bonds at 105 is recorded)  

On Jun. 30

Bonds payable $162,000

Premium on Bonds payable($174,960 - $162,000) $12,960  

          Gain on redemption of bonds ( bal fig) $14,580

          Cash($162,000 × .99) $160,380

(Being redemption of bonds at 98 is recorded)  

5 0
3 years ago
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