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A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Respuesta :

Answer:

$3,673.01.

Explanation:

Data given in the question

Time period = 5 years

Par value = $100,000

Interest rate = 7%

Issued rate = 7.5%

Received cash for the bonds = $97,947

So by considering the above information, the amount of the interest expense is

= Received cash for the bonds × issued rate

= $97,947 × 7.5%

= $7346.025

For semi annual, it is

=  $7346.025 ÷ 2

= $3,673.01.

Martebi

By the use of the effective interest method, the amount of interest expense for the first is $3,673.01.

What is the interest rate about?

Note that in the Data given above, in the question

  • Time period = 5 years
  • Par value = $100,000
  • Interest rate = 7%
  • Issued rate = 7.5%
  • Received cash for the bonds = $97,947

Therefore, the amount of the interest expense is = Received cash for the bonds × issued rate

= $97,947 × 7.5%

= $7346.025

For semi annual =  $7346.025/2

= $3,673.01.

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