question 3 (5 points)\nthe simpson corporation issued 8%, 10 - year - term bonds on january 1, 2014, with a…

question 3 (5 points)\nthe simpson corporation issued 8%, 10 - year - term bonds on january 1, 2014, with a face value of $1,000,000. interest is payable semi - annually on june 30 and december 31. the bonds were issued for $875,378 to yield an effective annual rate of 10%. simpson uses the straight - line method of amortization.\nwhich amount of discount (rounded) should be amortized for the first interest period?\n$4,985\n$3,769\n$6,231\n$14,985

question 3 (5 points)\nthe simpson corporation issued 8%, 10 - year - term bonds on january 1, 2014, with a face value of $1,000,000. interest is payable semi - annually on june 30 and december 31. the bonds were issued for $875,378 to yield an effective annual rate of 10%. simpson uses the straight - line method of amortization.\nwhich amount of discount (rounded) should be amortized for the first interest period?\n$4,985\n$3,769\n$6,231\n$14,985

Answer

Explanation:

Step1: Calculate bond discount

The face - value of the bonds is $F = $1,000,000$ and the issue price is $P=$875,378$. The bond discount $D$ is $D = F - P$. $D=1000000 - 875378=$124,622$

Step2: Determine number of interest periods

The bonds have a 10 - year term with semi - annual interest payments. So the number of interest periods $n=10\times2 = 20$

Step3: Calculate semi - annual discount amortization

Using the straight - line method, the semi - annual discount amortization $A$ is $A=\frac{D}{n}$ $A=\frac{124622}{20}=6231.1\approx$6,231$

Answer:

$6,231$ (corresponding to the third option)