The Ness Company sells $5,000,000 of five-year, 10% bonds at the start of the year. The bonds have an effective yield of 9%. Present value factors are below: 10%9%PV $1 factor 1 year0.909090.91743PV $1 factor 2 years0.826450.84168PV $1 factor 3 years0.751310.77218PV $1 factor 4 years0.683010.70843PV $1 factor 5 years0.620920.64993 The amount of cash interest paid in Year 1 on the bonds is: Multiple Choice $538,895. $500,000. $450,000. $467,503.

Answered: Company sells $5,000,000 of five-year,…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 6MC: On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest...

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The Ness Company sells $5,000,000 of five-year, 10% bonds at the start of the year. The bonds have an effective yield of 9%. Present value factors are below:

	10%	9%
PV $1 factor 1 year	0.90909	0.91743
PV $1 factor 2 years	0.82645	0.84168
PV $1 factor 3 years	0.75131	0.77218
PV $1 factor 4 years	0.68301	0.70843
PV $1 factor 5 years	0.62092	0.64993

The amount of cash interest paid in Year 1 on the bonds is:

Multiple Choice

$538,895.
$500,000.
$450,000.
$467,503.

Expert Solution

Step 1

Cash interest refers to the amount of interest that is paid to creditors.To put it another way, it refers to the amount of interest that has been settled.The interest expense, on the other hand, is the total interest expense of the firm.It is the total amount owing for a specific financial period.