Question

On January 1, 2015, ABC Company issued $10,000 of 8%, 12 year bonds for $9,632 cash. The bonds are dated January 1, 2015, and pay interest annually each December 31. The market rate of interest on the bonds is 8.5% on the issue date.The bond interest expense to be reported on the income statement for the year ended December 31, 2015will be somewhere between:A) 0 and $774B) $775-794C) $795-814D) $815-834E) $835 and $1,000The cash paid for interest on December 31, 2015would be:A) $768B) $800C) $816D) $850

Answer 1

The bond interest expense to be reported on the income statement for the year ended December 31, 2015 = 8% x $10,000 = $800.

The bond interest expense is between $795 to $814

The correct answer is C

The cash paid for interest on December 31, 2015 = $800.

The correct answer is B

Step-by-step explanation:

The interest expense on bond is calculated on the nominal value(face value) of the bond. The face value is $10,000 and coupon is 8%. Thus, we will calculate 8% of $10,000, which is equal to $800.