Detailed Answer
Answer (C) is correct. Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield), or $9,621 ($96,207 × 10%). Subtracting the cash interest payment from this leaves the amount of discount amortized ($9,621 – $9,000 = $621). Subtracting this amount from the previous unamortized discount ($3,793) leaves a remaining unamortized discount at the end of Year 1 of $3,172. Subtracting this amount from the face amount of the bonds ($100,000) provides a carrying amount of $96,828.