X2 issued callable bonds on January 1, 2021. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity: DateCash PaidInterestExpenseDecrease inCarrying ValueCarryingValue 01/01/2021 124,380 12/31/202115,00014,304696123,684 12/31/202215,00014,224776122,907 12/31/202315,00014,134866122,042 12/31/202415,00014,035965121,076 12/31/202515,00013,9241,076120,000 What is the annual market interest rate on the bonds? Multiple Choice 5.8%. 6.3%. 11.5%. 12.5%.

Annual market interest rate = InterestCarrying valueAnnual market interest rate = 14,304124,380×100=11.5%Answer: Correct option is C. i.e. 11.5%

Answered: X2 issued callable bonds on January 1,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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X2 issued callable bonds on January 1, 2021. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity:

Date	Cash Paid	Interest Expense	Decrease in Carrying Value	Carrying Value
01/01/2021				124,380
12/31/2021	15,000	14,304	696	123,684
12/31/2022	15,000	14,224	776	122,907
12/31/2023	15,000	14,134	866	122,042
12/31/2024	15,000	14,035	965	121,076
12/31/2025	15,000	13,924	1,076	120,000

What is the annual market interest rate on the bonds?

Multiple Choice

5.8%.
6.3%.
11.5%.
12.5%.

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