Question

On January 1, 2021, an investor paid $294,000 for bonds with a face amount of $314,000. The contract rate of interest is 11% while the current market rate of interest is 14%. Using the effective interest method, how much interest income is recognized by the investor in 2022 (assume annual interest payments and amortization)

Answer 1

$41,160

Step-by-step explanation:

Calculation for how much interest income is recognized by the investor in 2022

Using this formula

Interest income = Amount paid* Market rate of interest

Let plug in the formula

Interest income = $294,000*14%

Interest income= $41,160

Therefore how much interest income is recognized by the investor in 2022 will be $41,160