On January 1, 2023, Day Co. paid $92,278 for $100,000 faceamount, five-year, 8% bonds, a...

On January 1, 2023, Day Co. paid $92,278 for $100,000 face amount, five-year, 8% bonds, a price that yields 10%. Interest is payable every July 1 and January 1. Total Interest Revenue to be recorded over the life of the bond is:

Select one:

a. $32,278

b. $87,722

c. $47,722

d. $40,000

e. $7,722

Expert Solution

Correct Answer:

Option: c : $ 47,772

Working:

Effective Interest Amortization Table
Formula Used	*(650,0005%) / 2**	*Last year's Carrying value of bond Market Rate of Interest (4%)**	Interest Expense - Cash Paid	Last year's Carrying value of Bond - current year's Premium amortized
	Changes during the bond
Date	cash paid	Interest Revenue	Discount Amortized	Carrying value of Bond
1/1/2023		-	-	$ 92,278
7/1/2023	$ 4,000	$ 4,613.9	$ 614	$ 92,892
1/1/2024	$ 4,000	$ 4,644.6	$ 645	$ 93,536
7/1/2024	$ 4,000	$ 4,677	$ 677	$ 94,213
1/1/2025	$ 4,000	$ 4,711	$ 711	$ 94,924
7/1/2025	$ 4,000	$ 4,746	$ 746	$ 95,670
1/1/2026	$ 4,000	$ 4,784	$ 784	$ 96,454
7/1/2026	$ 4,000	$ 4,823	$ 823	$ 97,276
1/1/2027	$ 4,000	$ 4,864	$ 864	$ 98,140
7/1/2027	$ 4,000	$ 4,907	$ 907	$ 99,047
1/1/2028	$ 4,000	$ 4,952	$ 952	$ 100,000

Total		$ 47,772

ekkarill92 answered 3 years ago

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