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Financial Accounting

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Cash Interest for Bonds Payable

FINACT-KEIM4Q

Alex's Toy Warehouse issued a 3-year \$5,000,000 bond on 1/1/2015 with a stated interest rate of 5% and an effective interest rate of 4%. The company pays the bond interest semiannually, i.e., every 6/30 and 12/31 in 2015, 2016, and 2017. Assume the company amortizes any discount or premium on a straight-line basis.

On the first interest pay date, what is the total amount the company needs to pay for interest (in dollars)?

A

213,346

B

200,000

C

125,000

D

250,000