Computation of interest expense for the first semi-annual interest period under SLM on bonds issued.

1. On Jan 2 Froxel Co purchased 10,000 shares of Sandia Corp. common stock at $19 per share plus $3,000 commission. This represents 30% of Sandia Corp outstanding stock. On August 6, Sandia Corp declared and paid cash dividends of $1.75 per share and on Dec 31 it reported net income of $150,000. Prepare the necessary entries Froxel Co must make to account for these transactions and events.

2. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued at 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semi-annual interest period is

a) 3386.30

b) 3500.00

c) 3613.70

d) 6633.70

e) 7000.00