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12 June, 01:29

On January 1, 2018, Album Co. issued $200,000 of ten-year bonds. Interest is payable semi-annually on June 30 and December 31. The bonds were sold for $185,953. A journal entry was prepared on June 30, the first interest payment date, to record interest expense of $13,016 and cash interest paid of $12,000. What is the annual stated interest rate for the bonds?

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  1. 12 June, 02:19
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    12%

    Explanation:

    Album Co. paid $12,000 for interest, and that is the stated interest of the bonds.

    Stated interest = $12,000 / $200,000 = 6% semiannually, therefore the annual stated interest is 6% x 2 = 12%

    The stated rate is applied to the face value of the bonds, regardless of their selling or trading price.
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