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4 June, 14:41

Art Company issued 6%, 5 year bonds, with par value of $1,600,000, paying semiannual interest for $1,470,226. The annual market rate of interest on the date of issue was 8%. Assuming effective interest method of amortization, calculate the bond interest expense on the first interest payment date. Select one: A. $117,618 B. $ 58,809 C. $129,774 D. $ 48,000

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  1. 4 June, 16:49
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    The correct answer is option (B).

    Explanation:

    According to the scenario, the given data are as follows:

    Bond carrying value = $1,470,226

    Rate of interest = 8%

    Rate of interest (Semiannual) = 4%

    So, we can calculate the the bond interest expense on the first interest payment by using following formula:

    The bond interest expense = Bond carrying value * rate of interest (semiannual)

    By putting the value we get

    = $1,470,226 * 4%

    = $58,809
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