Given the following information from an amortization table, compute the interest expense and the carrying value for the next line of the table, rounding your answer to the nearest dollar: $$\begin{array} { | c | c | c | c | }
\hline \begin{array} { c }
2 \% \text { Cash } \
\text { Interest }
\end{array} & \begin{array} { c }
1 \% \text { Effective } \
\text { Interest }
\end{array} & \begin{array} { c }
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array} { c }
\text { Carrying } \
\text { Value }
\end{array} \
\hline \$ 800 & \$ 412 & \$ 388 & \$ 40,812 \
\hline
\end{array}$$
A) Interest Expense $408; Carrying Value $40,420
B) Interest Expense $408; Carrying Value $41,220
C) Interest Expense $412; Carrying Value $40,420
D) Interest Expense $412; Carrying Value $41,220

Question

Given the following information from an amortization table, compute the interest expense and the carrying value for the next line of the table, rounding your answer to the nearest dollar: $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
2 \% \text { Cash } \
\text { Interest }
\end{array} & \begin{array} { c } 
1 \% \text { Effective } \
\text { Interest }
\end{array} & \begin{array} { c } 
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array} { c } 
\text { Carrying } \
\text { Value }
\end{array} \
\hline \$ 800 & \$ 412 & \$ 388 & \$ 40,812 \
\hline
\end{array}$$
A) Interest Expense $408; Carrying Value $40,420
B) Interest Expense $408; Carrying Value $41,220
C) Interest Expense $412; Carrying Value $40,420
D) Interest Expense $412; Carrying Value $41,220

Quizplus · Accepted Answer

The interest expense is the product of the carrying value and the effective interest rate. The carrying value is the sum of the face value and the unamortized premium. The unamortized premium is the difference between the carrying value and the face value.In this case, the carrying value is $40,812, the face value is $40,000, and the effective interest rate is 1%. Therefore, the interest expense is $40,812 x 1% = $408.The carrying value for the next line of the table is the carrying value for the current line minus the premium amortization. In this case, the premium amortization is $388. Therefore, the carrying value for the next line of the table is $40,812 - $388 = $40,420.

Given the Following Information from an Amortization Table, Compute the Interest