Effective Rate Interest METHOD on Premium or Discount

6. Weller Company issued bonds with a face value of $400,000, a 10% stated rate of interest, and a 10-year term. The bonds were issued on January 1, 2016, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 8%. Interest is paid annually on December 31.

Assuming Weller issued the bond for $431,940, the amount of interest expense appearing on the 2018 income statement would be: A. $33,649. B. $20,000.

C. $34,120.

D. $46,350.

Bonds at Face Value

4. Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue: A. Cash and Notes Payable would both increase by $200,000. B. Cash and Notes Payable would both increase by $206,000. C. Cash would increase by $194,000, Notes Payable would increase by $200,000, and Discount on Bonds Payable would increase by $6,000.

D. Cash would increase by $194,000, and Note Payable would increase by $200,000 and Discount on Bonds would increase by $0.