On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds m
ID: 2548085 • Letter: O
Question
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. What is the amount of the liability at January 1, Year 1? a. $891,857 b. $1,000,000 c. $1,090,000 d. None of the answers are within $100 of the correct answer.
d. None of the answers are within $100 of the correct answer.
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. What is the amount of the liability at December 31, Year 1, after the first interest payment?
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. What is the amount of the liability at December 31, Year 2, after the second interest payment?
d. $927,945
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. Year 3 interest expense is:
a. $891,857 b. $1,000,000 c. $1,090,000d. None of the answers are within $100 of the correct answer.
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. What is the amount of the liability at December 31, Year 1, after the first interest payment?
a. $908,880 b. $1,000,000 c. $931,590 d. $891,857On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. What is the amount of the liability at December 31, Year 2, after the second interest payment?
a. $1,000,000 b. $931,590 c. $908,880d. $927,945
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. Year 3 interest expense is:
a. $270,000. b. $120,000. c. $111,353. d. $90,000.Explanation / Answer
AMORTIZATION OF DISCOUNT Date Cash Interest Interest Expense @12% Discount Amortized Unamortized Par value of Net liability Discount Bonds Bonds Jan 1 Year 1 108143 1,000,000 891,857 Dec 31, Year1 90,000 107023 17023 91120 1,000,000 908,880 Dec 31, Year 2 90000 109065.6 19066 72054 1,000,000 927,946 Dec31, Yyear 3 90000 111,354 21354 50700 1,000,000 949,300 Q1. Answer is a. $ 891957 (Net liability on jan1 Year1) Q2. Answer is a. $908,880 Net liability on Dec31, Year1) Q3. Answer is d. $927,945 ($ 927,946 i.e. net liability on DEc31, Year2) Q4. Answer is c. $111,354 (Interest expense on DEc31, Year3)