On 1 January 2013, Diab Services issued $140 000 of 4- year debentures with a stated rate of 9%. The market rate at time of issue was 8%, so the debentures were issued with a premium and sold for $144 758. Diab uses the effective- interest method to amortise debenture premium. Half- yearly interest payments are made on 30 June and 31 December of each year. How much interest expense will be recorded when the first interest payment is made?
A)$6 300
B)$1 050
C)$5 790
D)$11 200

Question

Quizplus · Accepted Answer

The interest expense is calculated using the market rate of 8% on the carrying amount of $144,758. For the first half-year, it is $144,758 * 4% = $5,790.32, rounded to $5,790.

On 1 January 2013, Diab Services Issued $140 000 of 4-