On January 1, 2016, Tonika Company 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. Tonika uses the effective-interest amortization method. The December 31, 2017 book value after the December 31, 2017 interest payment was made is closest to:

Question

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The book value is calculated by adding the interest expense (based on the effective interest rate) to the book value at the beginning of the period and then subtracting the cash interest payment. For 2017, the interest expense is $773.44 ($9,668 * 8%), and the cash interest payment is $700 ($10,000 * 7%). The book value at the end of 2017 is $9,668 + $773.44 - $700 = $9,741.44. However, the closest option provided is $9,820.

On January 1, 2016, Tonika Company Issued a Four-Year, $10,000