In Year 1,Karaoke Tunes issued $200,000 of bonds for $190,200.The stated rate of interest was 6.5%.The market rate of interest was 7.1%.How will the company calculate the discount at the time the bonds were issued using the effective interest method? Refer to the PV table on pages 717 to 720 of the text..

Question

Quizplus · Accepted Answer

To calculate the discount using the effective interest method, we need to calculate the present value of the bond at the market rate of interest of 7.1%. The calculation would be:
Present value = $200,000 x FVIF(7.1%, 1 year)
= $200,000 x 0.9359
= $187,180
Since the company issued the bond at $190,200, it received a discount of $3,020. Therefore, the correct choice is B: $190,200 x FVIF(7.1%, 1 year).

In Year 1,Karaoke Tunes Issued $200,000 of Bonds for $190,200