Free Solved Crane Company received proceeds of $94000 on 10-year, 6% bonds issued on January 1, 2020. The bonds had a face value of $100000 pay interest annually on December 31 and have a call price of 101. Crane uses the straight-line method of amortization.


It is asked in question that Crane Company received proceeds of $94000 on 10-year, 6% bonds issued on January 1, 2020. The bonds had a face value of $100000 pay interest annually on December 31 and have a call price of 101. Crane uses the straight-line method of amortization.

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Step 1 of 2

In the problem, it is given that “Crane” received proceeds of 94,000 on 10 bond issued on January 2, 2020 and the bonds had face value of$100,000pay interest annually on December 31 and a call price of 101.

Determine the amount of interest Crane must pay the bondholder in 2020 when the company uses the straight line method of amortization .

Explanation:

The amount of interest Crane must pay the bondholder, will be determined by using the given face value and interest rate .

 

Step 2 of 2

To calculate the amount of interest Crane must pay to bondholders in 2020, it is needed to consider the annual interest payment on the bonds. Since the bonds have a face value of $100,000 and pay interest annually on December 31, the annual interest payment can be calculated by using the following formula:

Annual Interest Payment=Face Value×Stated Interest Rate

In the problem the face value of bond is given for $100,000 and the interest rate is 6%

Annual interest Payment =$100,000×6100

Annual interest Payment =$6,000

 

Final solution

The amount of interest Crane must pay the bondholder in 2020 would be $6,000 .

Therefore the correct option is B

 

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