IMPORTANT: Before you watch the videos on the Effective Interest Method, make sure with your professor that you will need to learn this concept. This concept is one of the most difficult for the course and you do not want to waste your time learning it now if you don't need to!!!!

Concept #1: Calculating Bond Price with Time Value of Money

Concept #2: Important Equations for the Effective Interest Method of Bond Amortization

Concept #3: Effective Interest Method: Amortization Table

Concept #4: Effective Interest Method: Interest Expense Journal Entries

On October 1, your company issued a mortgage note of $459,000 that requires monthly payments, excluding interest, of $3,000 at the end of each month, beginning October 31. On the December 31 balance sheet, the mortgage note will be reported as a:
A) current liability of $27,000 and a long-term liability of $423,000.
B) current liability of $36,000 and a long-term liability of $414,000.
C) current liability of $9,000 and a long-term liability of $441,000.
D) a long-term liability of $450,000.
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Cainas Cookies issues a $100,000, 10 year bond for $93,500 on 1/1/15. The stated rate of interest was 8% and the market rate was 10% when the bond was sold, and interest is paid annually. How much interest expense will be recorded on 12/31?

A $50,000, 5%, 2 year bond was issued on 1/1/15 for $47,325, and interest is paid annually on the bond. The interest expense will be:
A. Greater than cash interest paid.
B. Equal to cash interest paid.
C. Less than cash interest paid.
D. Not enough information.

On February 1, 2006, Carlos O’Kelly’s issues $100,000 of 5-year, 9% bonds at $96,149 when the market rate of interest is 10%. Carolos O’Kelly’s uses the effective-interest method of amortization. Interest is paid twice a year, on February 1 and August 1. How much interest expense is recognized for the first semiannual interest payment on August 1, 2006?
a. $4,327
b. $4,500
c. $4,807
d. $5,000

On February 1, 2006, Carlos O’Kelly’s issues $100,000 of 5-year, 9% bonds at $96,149 when the market rate of interest is 10%. Carolos O’Kelly’s uses the effective-interest method of amortization. Interest is paid twice a year, on February 1 and August 1. How much interest expense is recognized for the first semiannual interest payment on August 1, 2006?
a. $4,327
b. $4,500
c. $4,807
d. $5,000

A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, determine how much of the bond discount would be credited to Discount on Bonds Payable at the end of the first interest period?
A) $377
B) $754
C) $2,000
D) $4,377

A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, determine how much of the interest expense, to the nearest dollar, for the second interest period?
A) $4,377
B) $4,596
C) $4,396
D) $4,158