On January 1,2013,Lane issues $700,000 of 7%,15-year bonds at a price of 106¾.The interest payments are made on June 30 and December 31.Lane elects a fiscal year ending September 30.What is the amount that would be recorded as cash paid in the December 31,2013,journal entry?
A)$24,500
B)$22,925
C)$12,250
D)$11,462
E)$13,458

Question

Quizplus · Accepted Answer

The cash paid for interest on December 31, 2013, is calculated as the face value of the bonds ($700,000) multiplied by the annual interest rate (7%), divided by 2 for the semi-annual payment: $700,000 * 7% / 2 = $24,500.

On January 1,2013,Lane Issues $700,000 of 7%,15-Year Bonds at a Price