Flounder Inc.
Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method.
On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%.
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Refer to the information provided for Flounder Inc. The interest expense on the bonds at June 30, 2012, is:
A) $79,482.77.
B) $36,000.00.
C) $39,741.38.
D) $29,806.04.

Question

Flounder Inc. 
Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method.
On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%.
-
Refer to the information provided for Flounder Inc. The interest expense on the bonds at June 30, 2012, is:
A) $79,482.77.
B) $36,000.00.
C) $39,741.38.
D) $29,806.04.

Quizplus · Accepted Answer

The interest expense is calculated using the effective interest method: $662,356 (carrying amount) * 12% (market rate) / 2 (semi-annual) = $39,741.38.

Flounder Inc. Use the Information Provided for Flounder Inc. to Answer the to Answer