Duncan Industries Sold $100,000 of 12 Percent Bonds on January

Multiple Choice

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2011 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The annual cash payment for interest on the bonds are:

A) $10,000
B) $12,000
C) $5,000
D) $6,000