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5 April, 06:42

On January 1, 2018, Charlie Co. received $308,000 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 expense is recognized by Charlie Co. in 2018 (assume annual interest payments and amortization) ?

a. $24,640.

b. $30,800.

c. $30,400.

d. $38,000

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  1. 5 April, 07:47
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    Answer

    The interest expense that is recognized by Charlie Co is b. $30,800.

    Step-by-step explanation:

    Interest expense to be recognized in 2018 = Bond carrying value*Market rate of interest

    Interest expense to be recognized in 2018 = 308000*10% = $30800

    Option 2 $30800 is correct
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