225. On January 1, Runner Corporation issued $2,000,000, 13%, 5-year bonds with interest payable on January 1. The bonds sold for $2,197,080. The market rate of interest for these bonds was 11%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for:

Question

Quizplus · Accepted Answer

Under the effective-interest method, the amount of interest expense for the period is calculated by multiplying the carrying value of the bonds at the beginning of the period by the effective interest rate. The effective interest rate is calculated by discounting the future cash flows (interest and principal payments) at the market rate of interest.

Carrying value at the beginning of the period = $2,197,080

Interest expense for the period = $2,197,080 × 11% = $241,679

Therefore, the answer is C.