Question

On November​ 1, 2020, FastCare sold $5,000,000 of​ three-year bonds for $4,750,325. From the​ proceeds, the...

On November​ 1, 2020, FastCare sold $5,000,000 of​ three-year bonds for $4,750,325. From the​ proceeds, the company paid accounting fees of $50,000. Interest of​ 5% is payable annually. What is the effective rate of​ interest? Round to two decimal places.

A.4.69%

B.3.63%

C.7.30%

D.5.00%

Homework Answers

Answer #1

Solution:

Net proceeds from issue of bond = $4,750,325 - $50,000 = $4,700,325

Annual interest payment = $5,000,000*5% = $250,000

Let effective interest rate = i

At effective interest rate, present value of interest and princiapl payment is equal to proceeds from bonds.

Period Cash Flow Effective Interest Rate (i)
0 4700325 7.30%
1 -250000
2 -250000
3 -5250000

Hence option C is correct.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Determining the Proceeds from Bond Issues Madison Corporation is authorized to issue $820,000 of 7-year bonds...
Determining the Proceeds from Bond Issues Madison Corporation is authorized to issue $820,000 of 7-year bonds dated June 30, 2016, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016. Required: Determine the proceeds that the company will receive if it sells the following: (Click here to access the tables to use with this exercise and round your answers to two decimal places, if necessary.) 1....
(a) Metlock Co. sold $1,930,000 of 12%, 10-year bonds at 106 on January 1, 2020. The...
(a) Metlock Co. sold $1,930,000 of 12%, 10-year bonds at 106 on January 1, 2020. The bonds were dated January 1, 2020, and pay interest on July 1 and January 1. If Metlock uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2020, and December 31, 2020. (Round answer to 0 decimal places, e.g. 38,548.) Interest expense to be recorded $ (b) Bonita Inc. issued $610,000 of...
The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2020....
The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2020. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Simon’s effective tax was 20%. Net income in 2020 was $9,500,000, and the company had 2,000,000 shares outstanding...
Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. The bonds are...
Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate % eTextbook and Media       Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to...
Larkspur Company sells 8% bonds having a maturity value of $2,000,000 for $1,848,366. The bonds are...
Larkspur Company sells 8% bonds having a maturity value of $2,000,000 for $1,848,366. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate     Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.)...
Novak Company sells 8% bonds having a maturity value of $3,170,000 for $2,929,660. The bonds are...
Novak Company sells 8% bonds having a maturity value of $3,170,000 for $2,929,660. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate %       Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places,...
On December 31, 2020, the Company issued $600,000 of 10 year, 6% bonds payable for $624,000,...
On December 31, 2020, the Company issued $600,000 of 10 year, 6% bonds payable for $624,000, yielding an effective interest rate of 5.75%. Interest is payable annually on December 31st of each year. Show the entry for the issuance of the bonds, and the annual payment of interest on December 21, 2021.
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the...
$480,000, 9%, 20-year bonds on January 1, 2020, for $439,135. effective-interest rate of 10% on the bonds which payable annually on January 1. Monty uses the effective-interest method to amortize bond premium or discount. A) use the effective-interest method to amortize bond prem/disc. record issuance on bond. Jan 1 2020 cash - Discount on bonds payable- bonds payable- B) Record accrual of interest/ discount amortization Dec31,2020 Dec 31 Interest expense - discount on bonds payable - interest payable - C)...
Marin Inc. has issued three types of debt on January 1, 2020, the start of the...
Marin Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year. (a) $11 million, 10-year, 13% unsecured bonds, interest payable quarterly. Bonds were priced to yield 11%. (b) $27 million par of 10-year, zero-coupon bonds at a price to yield 11% per year. (c) $20 million, 10-year, 9% mortgage bonds, interest payable annually to yield 11%. Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number...
On January 1, 2020, Sweetwood Corporation issues $5 million, 10-year, 9% bonds at 96, with interest...
On January 1, 2020, Sweetwood Corporation issues $5 million, 10-year, 9% bonds at 96, with interest payable annually on January 1. Which journal entry below should be used to record this transaction on January 1, 2020? (Pick the corresponding letter (a), (b), (c), or (d) for your answer.) (a) Cash........................................... 5,000,000                Bonds Payable........................................... 5,000,000 (b) Cash........................................... 4,800,000                Bonds Payable........................................... 4,800,000 (c) Discount on Bonds Payable..... 200,000       Cash............................................. 4,800,000                Bonds Payable......................................... 5,000,000 (d) Cash......................................... 5,000,000                Bonds...