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. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012?
A) $662,356.40
B) $666,097.78
C) $670,063.65
D) $133,902.22

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. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012?
A) $662,356.40
B) $666,097.78
C) $670,063.65
D) $133,902.22

Quizplus · Accepted Answer

The carrying value of the bonds after the first interest payment is calculated using the effective interest method. The interest expense is calculated as the carrying value ($662,356) multiplied by the market rate (12%/2 = 6%), which equals $39,741.36. The actual interest payment is $36,000 ($800,000 * 9%/2). The difference of $3,741.36 is added to the carrying value, resulting in $666,097.78.

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