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On January 1, Pacer Corporation issued $2000000, 13%, 5-year bonds with interest payable on January 1
On January 1, Pacer Corporation issued $2000000, 13%, 5-year bonds with interest payable on January 1. The bonds sold for $2197080. The market rate of interest for these bonds was 11%. On December 31, using the effective-interest method, the debit entry to Interest Expense is for:(A) $220000.
(B) $285620.
(C) $260000.
(D) $241679.
Expert Solution
Answer:
The correct option is D
Explanation:
Interest expense is to be computed on the bond selling amount or value. So,
The amount of interest expense would be:
Interest expense = Sold Value of bond × Rate of Interest
= $2,197,080 × 11%
= $241,679
On December 31, the method of effective interest is used, then the debit entry to the Interest expense amounts to $241,679.
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