Question
7. When using the effective interest method of amortization for bonds issued at discount,interest expense on bond liability reported on the income statement is: Market
7. When using the effective interest method of amortization for bonds issued at discount,interest expense on bond liability reported on the income statement is:
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Market rate of interest on the date the bonds times net carrying value of bond liability at the beginning of interest period.
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Interest Expense to be recognized will increase as interest period lapses
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Stated Interest rate on the date the bonds times net carrying value of bond liability at the beginning of interest period.
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Interest Expense to be recognized will be constant for each interest period lapses
8. On January 1, 2017, Santos Corporation issued a $250,000, 10%(stated interest rate per year), 5-year bond for $231,601. Cash interest is payable on June 30 and December 31. Santos uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12% per annum, approximately how much discount will be amortized on December 31, 2017?:
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$2,230.
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$1,480
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$1,396
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$ 987
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