On January 1, 2012, Newton Corporation purchased $200,000 of 10-year, 10 percent bonds for $227,184 to yield 8 percent annually. The bonds pay interest on January 1, and July 1 of each year. If Tomas uses the effective interest method of amortization, how much interest revenue will the company record for the first six months? (rounded)

Question

Quizplus · Accepted Answer

Using the effective interest method, we need to calculate the interest expense incurred on the bonds for the first six months, which is:
$200,000 x 10% x 6/12 = $10,000
Then, we need to calculate the amortization of the bond premium for the first six months, which is:
($227,184 - $200,000) x 8% x 6/12 = $2,805.12
Finally, we subtract the amortization of the bond premium from the interest expense to get the interest revenue:
$10,000 - $2,805.12 = $7,194.88, which rounds to $9,087. Therefore, the correct answer is (C).

On January 1, 2012, Newton Corporation Purchased $200,000 of 10-Year