On January 1, 2014, Macie Company purchased Jefferson Company's 9% bonds with a face amount of $200,000 for $213,420 to yield 8%. The bonds mature on January 1, 2024, and Macie has both the intent and ability to hold these bonds to maturity. The bonds pay interest annually on December 31. Assuming Macie uses the effective interest method of amortizing the bond premium; interest income reported on the December 31, 2014, balance sheet would be

Question

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Step 1: Calculate the interest expense for the year

Face value of the bond = $200,000

Interest rate on the bond = 9%

Interest expense for the year = $200,000 x 9% = $18,000

Step 2: Calculate the premium amortization for the year

Premium paid for the bond = $213,420 - $200,000 = $13,420

Effective interest rate = 8%

Premium amortization for the year = $200,000 x 8% = $16,000

Step 3: Calculate the interest income for the year

Interest income for the year = $18,000 - $16,000 = $2,000

Therefore, the interest income reported on the December 31, 2014, balance sheet would be $17,074 ($15,074 + $2,000).

On January 1, 2014, Macie Company Purchased Jefferson Company's 9