Table 15-2
Douglas Corporation is issuing $400,000 of 7.5%, five-year bonds. The bonds are dated and sold on March 1, 2017. Interest payment dates are March 1 and September 1. The market interest rate is 8% and the bonds are sold for $392,400. The company uses the effective-interest method of amortization.
-Refer to Table 15-2.What is the total cash payment for interest in 2017?

Question

Quizplus · Accepted Answer

The annual interest payment is calculated as $400,000 x 7.5% = $30,000. Since the bonds were sold on March 1, 2017, only one payment of $15,000 (half of the annual interest payment) is due on September 1, 2017. Therefore, the total cash payment for interest in 2017 is $15,000.

Table 15-2 Douglas Corporation Is Issuing $400,000 of 7.5%, Five-Year Bonds. the Bonds