On January 1,2010,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,how much is the interest expense on the income statement for the year ended December 31,2010 (to the nearest dollar)?
A)$677
B)$883
C)$773
D)$700

Question

Quizplus · Accepted Answer

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) F1F1F1S1F1F1F10 Market (effective) interest rate (.08).

On January 1,2010,Tonika Corporation Issued a Four-Year,$10,000,7% Bond