A Company Issued 5-Year, 7% Bonds with a Par Value

question 114

Multiple Choice

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

• A) $3,500.00.
• B) $7,000.00.
• C) $3,286.95.
• D) $6,573.90.
• E) $1,750.00.

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Definitions:

Useful Life

The estimated period over which an asset is expected to be used before it is fully depreciated and considered no longer useful for business operations.

Tax Rate

The proportion of income that is charged as tax to a person or company.

Intragroup Transactions

Transactions that take place between entities within the same group or company, often requiring elimination for consolidated financial reporting.