Question

On January 2, 2020, a calendar-year corporation sold 8% bonds with a face value of $2930000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2704000 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2020?

$270400.

$271300.

$293000.

$234400.

Answer 1

Option A) $ 270400
change in interest expense
27040000*5%		$             13,52,000
Sale value - 27040000	$          2,70,40,000
Add: yield 2704000*10%*1/2	$                1,35,200
Less:   bond interst 2930000*8%*1/2	$              -1,17,200
	$          2,70,58,000
27058000*5%		$             13,52,900
		$             27,04,900