On 1 July 2010 ABC Ltd purchased a 5-year $1000 5% debenture for $957.88. The current market rate of interest is 6%. The maturity date is 30 June 2015. Interest is payable annually on 30 June.
The interest income that ABC would recognise for the year ended 30 June 2011 is:

Question

Quizplus · Accepted Answer

The interest income is calculated using the effective interest rate method. The effective interest rate is 6%, and the initial carrying amount is $957.88. Therefore, the interest income for the year is $957.88 * 6% = $57.47.

On 1 July 2010 ABC Ltd Purchased a 5-Year $1000