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Find the amount of interest expense on mortgage bonds

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Reference no: EM132594027

Question - On October 1, Year 1, Howell Stores, Inc. issues twenty-year, first mortgage bonds with a face value of $1,000,000. The proceeds of the issue are $1,060,000. The bonds bear interest at the rate of 10 percent per year, payable semiannually at April 1 and October 1. Howell Stores Inc. closes its books annually at December 31. Round amounts to the nearest dollar.

Assume that Howell Stores, Inc. uses the effective-interest method. The effective-interest rate to be used is 9.3 percent, compounded semiannually. The amount of interest expense on mortgage bonds at Dec 31st of the first year is:

A. $50,000

B. $24,645

C. None of the other alternatives are correct

D. $25,000

E. $24,250

Reference no: EM132594027

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