ABC Company received $9,631 for its 5-year,10% bonds with a total face value of $10,000.The market rate of interest was 11%.The bonds pay interest annually on December 31.Approximately how much interest expense will ABC Corporation record on the first annual interest payment date using the effective-interest method?
A) $1,059
B) $1,000
C) $1,074
D) $963.10

Question

Quizplus · Accepted Answer

The interest expense using the effective-interest method is calculated by multiplying the carrying amount of the bond by the market interest rate. The carrying amount is $9,631 and the market rate is 11%, so the interest expense is $9,631 * 11% = $1,059.41, which rounds to $1,059.

ABC Company Received $9,631 for Its 5-Year,10% Bonds with a Total