Question

On January 1, 2024, an investor paid $315,000 for bonds with a face amount of $380,000. The stated rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2024 (assume annual interest payments and amortization)

Answer 1

$31,500

Step-by-step explanation:

Calculation to determine how much interest income is recognized by the investor in 2024

Using this formula

Interest income=Amount paid by investor*market rate of interest

Let plug in the formula

Interest income=$315,000 × 10%

Interest income=$31,500

Therefore Using the effective interest method, how much interest income is recognized by the investor in 2024 is $31,500