On January 1,Year 1,Gibson Corporation purchased bonds issued by Williamson Company.These bonds were classified as held-to-maturity securities.The face value of these bonds is $200,000,pay 8% interest and were purchased to yield 6%.The bonds mature in 10 years and pay interest on an annual basis.If Gibson Corporation paid $229,439 for these bonds,how much interest revenue should it report on the bonds at December 31,Year 1? Assume that Gibson used the effective interest method.

Question

Quizplus · Accepted Answer

The correct answer is D because the effective interest method allocates the bond discount over the life of the bond, resulting in interest revenue of $22,943 for the first year.

On January 1,Year 1,Gibson Corporation Purchased Bonds Issued by Williamson