On January 1, 2014, Tonika Corporation 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. Assuming effective-interest amortization is used, the 2015 interest expense is closest to:
A) $779.
B) $796.
C)$677.
D)$700.

Question

Quizplus · Accepted Answer

The interest expense for 2015 is calculated using the effective interest rate method: $9,668 (carrying amount at the beginning of 2015) * 8% (effective interest rate) = $773.44, which rounds to $779.

On January 1, 2014, Tonika Corporation Issued a Four-Year, $10,000