On July 1, Year 01, the Lowell Merchandising Corporation received $500,000 cash
ID: 2492394 • Letter: O
Question
On July 1, Year 01, the Lowell Merchandising Corporation received $500,000 cash when it issued 5-year, 6% annual interest rate bonds at a total par value of $500,000. Six months’ interest is to be paid to bondholders on June 30 and December 31each year. The Lowell Merchandising Corporation intends to redeem the bonds on June 30, Year 06.
Calculate the Lowell Merchandising Corporation's interest expense related to the bonds for the 12-month period ended December 31, Year 02.
$30,000
$15,000
$500,000
$100,000
$130,000
0.8 points
QUESTION 4
On July 1, Year 01, the Lowell Merchandising Corporation received $500,000 cash when it issued 5-year, 6% annual interest rate bonds at a total par value of $500,000. Six months’ interest is to be paid to bondholders on June 30 and December 31each year. The Lowell Merchandising Corporation intends to redeem the bonds on June 30, Year 06.
Calculate the Lowell Merchandising Corporation's December 31, Year 03 cash payment related to the bonds.
$30,000
$150,000
$130,000
$530,000
$15,000
0.8 points
QUESTION 5
On July 1, Year 01, the Lowell Merchandising Corporation received $500,000 cash when it issued 5-year, 6% annual interest rate bonds at a total par value of $500,000. Six months’ interest is to be paid to bondholders on June 30 and December 31each year. The Lowell Merchandising Corporation intends to redeem the bonds on June 30, Year 06.
Calculate the Lowell Merchandising Corporation's June 30, Year 06 cash payment related to the bonds.
$650,000
$15,000
$30,000
$515,000
$500,000
$30,000
$15,000
$500,000
$100,000
$130,000
Explanation / Answer
1) Interest expense for the 12 month period = 500000*6% i.e 30000
2) 31 december year 03 cash payment related to bonds = 500000*6%*6/12 i.e 15000
3) 30June year 06 cash payment related to bonds = Maturity value of bonds + Interest for 6 months
= 500000+( 500000*6%*6/12)
= 515000
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