In: Accounting
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
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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