Question

# A company issued 6-year, 8% bonds with a par value of \$350,000. The market rate when...

A company issued 6-year, 8% bonds with a par value of \$350,000. The market rate when the bonds were issued was 7.5%. The company received \$353,500 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

• \$27,708.

• \$13,708.

• \$14,000.

• \$28,000.

• \$14,292.

A corporation reports the following year-end balance sheet data. The company's working capital equals:

 Cash \$ 44,000 Current liabilities \$ 79,000 Accounts receivable 59,000 Long-term liabilities 39,000 Inventory 64,000 Common stock 104,000 Equipment 149,000 Retained earnings 94,000 Total assets \$ 316,000 Total liabilities and equity \$ 316,000

Multiple Choice

• \$88,000

• \$167,000

• \$79,000

• \$316,000

• \$198,000

Bond premium amortized each period = (Carrying value of the bonds - Face value of the bonds) / Number of interest periods

= (\$353,500 - \$350,000) / (6 * 2)

= \$292

Interest expense = Interest paid - Bond premium amortized

= (\$350,000 * 8% * 1/2) - \$292

= \$13,708

-------------------------------------------------------

Working capital = Current assets - Current liabilities

= (Cash + Accounts receivable + Inventory) - Current liabilities

= (\$44,000 + \$59,000 + \$64,000) - \$79,000

= \$88,000

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