ABC Company Received $9,631 for Its 5-Year,10% Bonds with a Total

question 152

Multiple Choice

ABC Company received $9,631 for its 5-year,10% bonds with a total face value of $10,000.The market rate of interest was 11%.The bonds pay interest annually on December 31.Approximately how much interest expense will ABC Corporation record on the first annual interest payment date using the effective-interest method?

• A) $1,059
• B) $1,000
• C) $1,074
• D) $963.10

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Definitions:

Investments Account

An account on the balance sheet that reports the cost of investments held by an entity, such as stocks, bonds, or real estate.

Balance Sheet

A financial statement that shows the assets, liabilities, and shareholders' equity of a company at a specific point in time, providing a snapshot of a company's financial condition.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Common Stock

Certificates issued by a corporation to investors as proof of their ownership rights; an account representing the ownership rights of investors in a corporation; a class of stock issued by a corporation that bears no preference rights.