Use the information above to answer the following question.If the effective interest method of amortization is used,how much total interest expense would be recorded in 2013?
A)$1,000
B)$1,080
C)$800
D)$864

Question

Quizplus · Accepted Answer

The effective interest method results in a varying amount of interest expense each period, based on the carrying value of the bond and the effective interest rate. Using this method, the interest expense for 2013 would be calculated as: 
Carrying value at beginning of year = $1,080,000 
Effective interest rate = 8.75% 
Interest expense for the year = $1,080,000 x 8.75% = $94,500 
Amortization of bond discount for the year = $1,080,000 x 0.75% = $8,100 
Total interest expense for 2013 = $94,500 + $8,100 = $102,600 
Therefore, the correct answer is D) $864.

Use the Information Above to Answer the Following Question