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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 4PB
Textbook Problem
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Irving Inc. sold bonds with a $50,000, 10% interest, and 10-year term at $52,000. What is the total amount of interest expense over the life of the bonds?

To determine

Concept introduction:

Bonds:

are defined as debt instruments which are usually issued by the company that borrows to its lenders. They are issued at a rate of interest that is s×pecified and for a specified period of time. The bondholders receive a fixed rate of interest on the bonds and the repayment of the bonds is made at the maturity date.

Simple interest:

Simple interest is the amount of interest paid on the principal amount using a fixed interest rate. The formula to calculate the Simple interest is as follows:

Simple Interest = Principal amount ×Interest rate ×Period

To calculate:

The total amount of interest expense over the life of the bonds.

Explanation of Solution

The total amount of interest expense over the life of the bonds is calculated as follows:

Total Interest Payment = Face value of Bonds × Stated Interest Rate ×Number o...

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Chapter 13 Solutions

Principles of Accounting Volume 1
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