ACCA FR · Chapter 7 · Question 10 of 10
On 1 January Siskin Co bought a bond with a nominal value of $1,000,000 for $950,000, including transaction costs. The coupon is 6%, received annually on 31 December, and the effective interest rate is 7.25%. The bond is held at amortised cost. What interest income and closing carrying amount should be reported for the first year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Interest income $68,875; carrying amount $958,875
Explanation
Interest income is calculated at the effective rate on the opening amortised cost: $950,000 x 7.25% = $68,875. Cash received = $1,000,000 x 6% = $60,000. Closing amortised cost = $950,000 + $68,875 - $60,000 = $958,875.
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