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Dmitry_Shevchenko [17]
2 years ago
12

On December 31, 2018, Gardner Company holds debt securities classified as HTM with a face amount of $100,000 and a carrying valu

e of $95,000. The bonds have an effective interest rate of 6% and pay interest of $2,500 semi-annually on June 30 and December 31. The effective interest revenue recognized for the six months ended December 31, 2018 is:
Business
1 answer:
Sunny_sXe [5.5K]2 years ago
3 0

Answer:

$2,850

Explanation:

Given the following :

Face value of security = $100,000

Carrying value = $95,000

Effective interest rate = 6%

Interest paid semianually = $2500

The effective interest revenue recognized for the six months ended December 31, 2018 is:

IF effective interest rate = 6%

Semiannual interest = 6% / 2 = 3%

Therefore effective interest revenue for six months will be the product of the carrying value and the interest rate within the six months period :

3% = 0.03

0.03 * $95,000 = $2,850

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