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.

Question

Business

Pranav Stephenson

4 November, 00:54

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.

+3

Answers (1)

Know the Answer?

Molly Ware · Answer 1

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.