Acompany issues $15,000,000, 7.8%, 20-year bonds to yield 8% on january 1, 2012. interest is paid on june 30 and december 31. the proceeds from the bonds are $14,703,109.

using effective-interest amortization, how much interest expense will be recognized in 2012?

a. $585,000
b. $1,170,000
c. $1,176,374
d. $1,176,249

Total Interest Expense=$1,176,498.32

Closest answer from the option is $1,176,374 (C)

Explanation:

Using effective Interest rate method.

The bond was issued at discount and it has 40 semi-annual interest repayment periods.

The discount on the bond will be amortised over the entire life of the bond.

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in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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