On January 1, 2013, Aldrine Company issued 3 year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, Aldrine Company paid bond issue cost of P150,000. The PV of 1 at 11% for 3 periods is .7312 and the PV of an ordinary annuity of 1 at 11% for 3 periods is 2.4437. The present value of the bonds using 11% is: PV of principal (5,000,000 x .7312) 3,656,000 PV of annual interest payments (500,000 x 2.4437) 1,221,850 Total present value of bonds 4,877,850 The PV of 1 at 12% for 3 periods is .7118, and the PV of an ordinary annuity of 1 at 12% for 3 periods is 2.4018. The present value of the bonds using 12% is: PV of principal (5,000,000 x .7118) 3,559,000 PV of annual interest payments (500,000 x 2.4018) 1,200,900 Total present value of bonds 4,759,900 What is the interest expense for 2013 using the effective interest method? Select one: a. 559,680 b. 528,000 c. 550,000 d. 576,000
On January 1, 2013, Aldrine Company issued 3 year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, Aldrine Company paid bond issue cost of P150,000. The PV of 1 at 11% for 3 periods is .7312 and the PV of an ordinary annuity of 1 at 11% for 3 periods is 2.4437. The present value of the bonds using 11% is: PV of principal (5,000,000 x .7312) 3,656,000 PV of annual interest payments (500,000 x 2.4437) 1,221,850 Total present value of bonds 4,877,850 The PV of 1 at 12% for 3 periods is .7118, and the PV of an ordinary annuity of 1 at 12% for 3 periods is 2.4018. The present value of the bonds using 12% is: PV of principal (5,000,000 x .7118) 3,559,000 PV of annual interest payments (500,000 x 2.4018) 1,200,900 Total present value of bonds 4,759,900 What is the interest expense for 2013 using the effective interest method? Select one: a. 559,680 b. 528,000 c. 550,000 d. 576,000
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 15MCQ
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On January 1, 2013, Aldrine Company issued 3 year bonds with face value of P5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, Aldrine Company paid bond issue cost of P150,000.
The PV of 1 at 11% for 3 periods is .7312 and the PV of an ordinary annuity of 1 at 11% for 3 periods is 2.4437. The presentvalue of the bonds using 11% is:
PV of principal (5,000,000 x .7312) 3,656,000
PV of annual interest payments (500,000 x 2.4437) 1,221,850
Total present value of bonds 4,877,850
The PV of 1 at 12% for 3 periods is .7118, and the PV of an ordinary annuity of 1 at 12% for 3 periods is 2.4018. The present value of the bonds using 12% is:
PV of principal (5,000,000 x .7118) 3,559,000
PV of annual interest payments (500,000 x 2.4018) 1,200,900
Total present value of bonds 4,759,900
What is the interest expense for 2013 using the effective interest method?
The PV of 1 at 11% for 3 periods is .7312 and the PV of an ordinary annuity of 1 at 11% for 3 periods is 2.4437. The present
PV of principal (5,000,000 x .7312) 3,656,000
PV of annual interest payments (500,000 x 2.4437) 1,221,850
Total present value of bonds 4,877,850
The PV of 1 at 12% for 3 periods is .7118, and the PV of an ordinary annuity of 1 at 12% for 3 periods is 2.4018. The present value of the bonds using 12% is:
PV of principal (5,000,000 x .7118) 3,559,000
PV of annual interest payments (500,000 x 2.4018) 1,200,900
Total present value of bonds 4,759,900
What is the interest expense for 2013 using the effective interest method?
Select one:
a. 559,680
b. 528,000
c. 550,000
d. 576,000
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