On April 1, 2014, Able Co borrows $200,000 for four years from the Toy Company to obtain

funds to buy a piece of commercial property. As collateral, Able Co. gives Toy Company a

mortgage on the manufacturing plant that it owns and that are on its books at a cost of $50,000.

Interest is charged on the unpaid balance of the loan principal at an interest rate of 4 percent

per year compounded semiannually. Payments are due on April 1 and October 1 of each

year. Able co agrees to make eight payments over the four years of the mortgage so that when

the last payment is made on April 1, 2018, the loan and all interest will have been paid. The first

seven payments are to be equal. The eighth payment is to be just large enough to discharge the

balance of the loan. Able Co. closes its books annually on December 31 and uses the effective

interest method.

1.Each equal payment from October 2014 to October 2018 is equal to (round to the nearest

hundred):

a). $52,500

b). $27,300

c). $22,300

d). $22,200

e). Not enough data provided to calculate it

2.The payment on April 2018 is equal to (round to the nearest dollar, no cents):

a). $52,525

b). $27,317

c). $22,247

d). less than $100

e). None of the above

3.Yu Company sold $ 1,500,000 of five-year, 12% bonds on August 1, 2012. The effective

interest rate is 10% and the interest payment dates are July 31st and January 31st of each year. Yu

has a December 31st year end and the company uses the effective interest rate method to amortize

the bond discount/premium. The bond issue price on August 1, 2012 is:

a) $ 920,850

b) $ 694,953

c) $ 1,500,000

d) $ 1,615,803

e) None of the above