Effective Interest Amortization of Bond Premium or Discount Video Lessons

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Problem: 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

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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

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