Question

In: Accounting

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

Solutions

Expert Solution

Correct Answer:

Option: c : $ 8228

Working:

Effective Interest Amortization Table

Formula Used

(100,000*10%) / 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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