On January 1,2014,Yearly Corporation issued $500,000 of 10 percent,10-year bonds at 88.5.Interest is payable on December 31.If the market rate of interest was 12 percent at the time the bonds were issued,how much cash was paid for interest in 2014?

Question

Quizplus · Accepted Answer

The cash paid for interest in 2014 is based on the face value of the bonds and the stated interest rate, not the market rate or the issue price. Therefore, the cash interest paid is 10% of $500,000, which equals $50,000.

On January 1,2014,Yearly Corporation Issued $500,000 of 10 Percent,10-Year Bonds