On January 1, 2018, an investor paid $291,000 for bonds with a face amount of $300,000. The contract rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2019 (assume annual interest payments and amortization)?

Question

Quizplus · Accepted Answer

[$291,000 + ($291,000 × 10%) - ($300,000 × 8%)] × 10% = $29,610

On January 1, 2018, an Investor Paid $291,000 for Bonds