Question

On January 1, 2019, Tonika Company issued a six-year, $10,000, 6% bond. The interest is payable annually each December 31. The issue price was $9,523 based on an 7% effective interest rate. Tonika uses the effective-interest amortization method. The December 31, 2020 book value after the December 31, 2020 interest payment was made is closest to:

Answer 1

Answer:

$9,590

Explanation:

Calculation to determine what The December 31, 2020 book value after the December 31, 2020 interest payment was made is closest to:

First step is to calculate the Interest paid

Interest paid = 10000*6%

Interest paid= 600

Second step is to calculate the Interest expense

Interest expense = 9,523*7%

Interest expense= 667

Third step is to calculate the Discount amortization

Discount amortization =667-600

Discount amortization = 67

Now let calculate Book value at the end of December 31,2020

Book value at the end of December 31,2020 = 9,523 +67

Book value at the end of December 31,2020 = $9,590

Therefore The December 31, 2020 book value after the December 31, 2020 interest payment was made is closest to:$9,590