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, Year 1, 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 Year 3 income statement would be:

$33,649

Explanation:

Period   Interest Exp   Interest paid   Premium amortized  Carrying value

0                   -                      -                              -                         $431,940

1              34,555              40,000                  5,445                    $426,495

2             34,120               40,000                  5,880                    $420,615

3             33,649              40,000                   6,351                    $414,264

Interest expenses = Carrying value * 8%

Premium amortized = Interest paid - Interest Expenses

Carrying value 1 = Carrying value 0 - Premium amortized

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