Use the information above to answer the following question.If the Simplified Approach (Effective-interest Method)of amortization is used,how much total interest expense would be recorded in 2013?
A)$1,000
B)$1,080
C)$800
D)$864

Question

Quizplus · Accepted Answer

The bond was issued at a discount of $8,000 - $7,192 = $808. 
Annual interest payment = $1,000 x 8% = $80. 
Using the Effective-interest method, the interest expense in the first year would be calculated as: 
Year 1: 
Interest expense = Beginning book value x Effective-interest rate 
= $7,192 x 12% (calculated as $80/$7,192) = $863.04 
Therefore, the total interest expense recorded in 2013 would be $863.04. Hence, the answer is option D ($864).

Use the Information Above to Answer the Following Question