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Question
Merchant Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective interest rate method to amortize bond discounts and premiums. On July 1 of the first year, Merchant should record interest expense (rounded to the nearest dollar) of
a. $7,032
b. $7,500
c. $8,790
d. $14,065
Answer
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