On 1 January 2014, Partridge Company issued $50 000 of 6- year debentures with a stated rate of 3%. The market rate at time of issue was 4%, so the debentures were discounted and sold for $47 331. Partridge uses the effective- interest rate of amortisation for debenture discount. Half- yearly interest payments are made on 30 June and 31 December of each year. How much interest expense will be recorded when the first interest payment is made? (Please round to the nearest whole dollar.)
A)$2 000
B)$750
C)$947
D)$167

Question

Quizplus · Accepted Answer

The interest expense is calculated using the market rate of 4% on the carrying amount of the debentures. The carrying amount at issuance is $47,331, so the first interest expense is $47,331 * (4% / 2) = $947.

On 1 January 2014, Partridge Company Issued $50 000 of 6-