(CMA Adapted, Dec 86 #20) on January 1, Year 1

question 3

Multiple Choice

(CMA adapted, Dec 86 #20) On January 1, Year 1, Nicole Company sold its 5-year, $100,000 face value, 8% bonds at $108,530, to yield an effective annual interest rate of 6%.The bonds are dated January 1, Year 1, and interest is payable annually on January 1.Using the effective interest method of premium amortization, the amount of interest expense (rounded to the nearest dollar) reported by Nicole Company in Year 1 is

• A)$1,488
• B)$6,512
• C)$8,000
• D)$8,682
• E)$9,681

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Definitions:

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