Answer:
Interest expense for the year : 1,530,505.41
Explanation:
In the effective method the interest expense si determinate by multiplying the market rate with the carrying value.
Then, the difference against the cash outlay and this interest expense will amortize the bond discount:
Period B Carrying Cash outlay Int. Exp. Amort Carrying Value
1 19,604,145 800000 764561.66 35438.34 19,639,583
2 19,639,583 800000 765943.75 34056.25 19,673,640
<em><u>Total interest expense:</u></em>
764,561.66 + 765,943.75 = 1,530,505.41
Then 800,000 - 764,561.66 = 35,438.34 amortization
new carrying value 19,604,145 + 35,438.34 = 19,639,583
Last: 19,638,583 x 0.078/2 = 765943.75
We add up the interst expense:
<em><u>Total interest expense:</u></em>
764,561.66 + 765,943.75 = 1,530,505.41
