1. Eagles Nest Clothiers issued bonds with a 8% annual stated interest rate and a $20,000 face value. The issue price was $19,780 and the market rate at the date of issue was 9% . Assume the company uses the effective interest rate method.
What is the amount of the first years interest payment to the bondholders?
a. $1,582
b. $1,800
c. $1,600
d. $1,780
2. Kelsey Corporation issued bonds on 1/1/year1. The bonds have a 10 year maturity, a face value of $200,000 and a stated interest rate of 3%. The market rate of interest on the date of issue was 4%. The bonds were issued for $183,777.
How much interest expense will Kelsey Corp. record related to this bond over the 10-year life. (You do not need to do an amortization schedule to answer this.)
a. $76,223
b. $96,223
c. $16,223
d. $43,777
e. $60,000
f. $63,777
g. $80,000
3. Jared Corp needs $900,000 for an expansion in 10 years. The company will make 10 equal annual deposits to fund this expansion. If the account earns 5% interest, how much does Jared need to deposit each year?
Choose the closest answer.
a. $71,554
b. $135,000
c. $45,000
d. $116,554
e. $90,000
4. If a bond is sold at a discount, the carrying value reported on the balance sheet in following years:
a. Stays the same each year
b. Increases each year
c. Decreases each year
5. Henrie purchased a stereo from his cousin. Henrie will pay $250 per year for 4 years.
If Henrie''s payments include interest at 9%, what was the purchase price of the stereo?
Choose the closest answer.
a. $870
b. $1,143
c. $810
d. $910
e. $1,000
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