Question

[The following information applies to the questions displayed below.] On January 1, Year 1, Weller Company issued bonds with a $210,000 face value, a stated rate of interest of 10.50%, and a 10-year term to maturity. Weller uses the effective interest method to amortize bond discounts and premiums. The market rate of interest on the date of issuance was 8.50%. Interest is paid annually on December 31. Assuming Weller issued the bond for $227,690, what is the amount of interest expense that will be recognized during Year 3? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Multiple Choice

$22,050

$19,354

$18,876

$25,224

Answer 1

The amortization schedule for 3 years is as shown below

Year	Opening Amortization cost	Interest at market rate @8.5%	Annual Coupon payment	Bond Premium Amortized	Closing Amortization cost
1	227690	19353.65	22050	2696.35	224994
2	224993.65	19124.46	22050	2925.54	222068
3	222068.11	18875.789	22050	3174.211	218894

From above, we can see that the Coupon amount paid as interest is $22050 however the bond premium amortized in the year is $3174.21

So, the Interest recognised is $22050-$3174.21= $18876 apx