On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method.
-The 2020 interest expense is closest to:

Question

On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method. 
-The 2020 interest expense is closest to:

Quizplus · Accepted Answer

The correct answer is A because the interest expense for 2020 is $779. This is calculated by multiplying the carrying value of the bond at the beginning of the year ($9,668) by the effective interest rate (8%).

On January 1,2019,Tonika Company Issued a Four-Year,$10,000,7% Bond