Question

On January 2, 2014, a calendar-year corporation sold 8% bonds with a face value of $1,500,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,384,000 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2014

Answer 1

$69,660

Step-by-step explanation:

Calculation for how much should be charged to interest expense in 2014 Using the effective-interest method of computing interest

2014 Interest expense =($1,384,000 × .05) =

2014 Interest expense=[$1,384,000 + ($1,384,000 × .05 - $60,000)] × .05

2014 Interest expense=[$1,384,000 + ( $69,200- $60,000)] × .05

2014 Interest expense=[$1,384,000 +$9,200] × .05

2014 Interest expense=$1,393,200×0.05

2014 Interest expense=$69,660

Therefore Using the effective-interest method of computing interest, how much should be charged to interest expense in 2014 is $138,860