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A company issued 6.0%, 5-year bonds with a par value of $80,000. The market rate when the bonds were issued was 7.0%. The company received $76,673.36 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is: Skipped Multiple Choice Ο $2,693.49. Ο $2,400.00. Ο $2,683.57. Ο $5,377.06. Ο $4,800.00.

Respuesta :

Using the effective interest approach, the second semiannual interest period's interest expense comes to $2,683.57.

What distinguishes effective interest methods from one another?

Simply because it is more exact from period to period than the straight-line approach, which amortizes the same amount over each period, the effective interest way of amortizing a bond is thought to be better than the straight-line method.

The effective interest rate is the percentage that accurately reduces anticipated future cash flows to either the gross carrying value of a financial asset or the amortized cost of a potential burden (as defined in Appendix A of IFRS 9)..

Briefing:

Time period = 5 years

Par value =$80,000

Interest rate = 6%

Issued rate = 7.0%

Received cash for the bonds = $76,673.36

=$76,673.36 × 7.0%

= $460,040.16

For semi annual, it is

= $460,040.16 ÷ 2

=$2,683.57.

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