On January 1, 2023, Day Co. paid $103,288 for $100,000 face amount 10% bonds, a price...

On January 1, 2023, Day Co. paid $103,288 for $100,000 face amount 10% bonds, a price that yields 8%. Interest is payable every July 1 and January 1. Interest revenue for the year ended December 31, 2023, using the effective interest method should be approximately:

Select one:

a. $10,329

b. $8,263

c. $8,228

d. $8,000

e. $10,000

Expert Solution

Correct Answer:

Option: c : $ 8228

Working:

Effective Interest Amortization Table
Formula Used	*(100,00010%) / 2**	*Last year's Carrying value of bond Market Rate of Interest (8%)/2**	Cash Paid - Interest Expense	Last year's Carrying value of Bond - current year's Premium amortized
	Changes during the bond
Date	cash paid	Interest Revenue	Premium Amortized	Carrying value of Bond
1/1/2023		-	-	$ 103,288
7/1/2023	$ 5,000	$ 4,131.5	$ 868	$ 102,420
1/1/2024	$ 5,000	$ 4,096.8	$ 903	$ 101,516

Total interest revenue		.$ 8228

End of Answer.

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ekkarill92 answered 7 months ago

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