Bond Interest


The interest charged on a $200,000 note payable, at a rate of 6%, on a 2-month note would be

A.  $12,000

B.  $6,000

C.  $3,000

D.  $2,000


If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

A.  $3,000,000

B.  $90,000

C.  $300,000

D.  $210,000


Hilton Company issued a four-year interest-bearing note payable for $300,000 on January 1, 2011. Each January the company is required to pay $75,000 on the note. How will this note be reported on the December 31, 2012 balance sheet?

A.  Long-term debt, $300,000.

B.  Long-term debt, $225,000.

C.  Long-term debt, $150,000; Long-term debt due within one year, $75,000.

D.  Long-term debt, $225,000; Long-term debt due within one year, $75,000.


A corporation issued $600,000, 10%, 5-year bonds on January 1, 2011 for 648,666, which reflects an effective-interest rate of 8%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

A.  $30,000

B.  $24,000

C.  $32,434

D.  $25,946

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