On January 1, 2019, Tonika Company issued a five-year, $10,000, 8% bond. The interest is payable annually each December 31. The issue price was $9,611 based on an 9% effective interest rate. Tonika uses the effective-interest amortization method. The interest expense on the income statement for the year ended December 31, 2019 is closest to:

Question

Mitchell Tapia

Business

6 December, 13:38

On January 1, 2019, Tonika Company issued a five-year, $10,000, 8% bond. The interest is payable annually each December 31. The issue price was $9,611 based on an 9% effective interest rate. Tonika uses the effective-interest amortization method. The interest expense on the income statement for the year ended December 31, 2019 is closest to:

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Tessa Case · Answer 1

So book value at the end of December will be $9676

Explanation:

We have given amount of the bond = $10000

Rate of interest = 8 %

So interest paid Interest paid = 10000*0.08 = 800

Issue price = $9611

Effective interest rate = 9 %

Interest expense = 9611*0.09 = 865

Discount amortization = 865-800 = 65

Book value at the end of December 31,2019 = 9611+65 = 9676