contestada

On January 1, a company issued 5%, 15-year bonds with a face amount of $80 million for $59,249,660 to yield 8%. Interest is paid semiannually. What was the interest expense at the effective interest rate on the December 31 annual income statement

Respuesta :

ayokenny2001

Answer:

$3,565,174.18

Explanation:

Firstly, we need to calculate discount on the bond

Discount = $80,000,000 - $59,249,660

= $20,750,340

Since interest is paid semi-annually,

= 15 × 2

= 30 periods

Finding the amortized discount per period, we have;

= $20,750,340 ÷ 30

= $691,678

Therefore, interest expense on June 31;

Interest expense = Interest paid + discount amortized per period

= $80,000,000 × 0.05 × 6/22 + $691,678

= $1,090,909.09 + $691,678

= $1,782,587.09

Interest expense on December 31;

= $80,000 × 0.05 × 6/12 + $691,678

= $1,090,909.09 + $691,678

=$1,782,587.09

Total expense on December 31 = Interest expense on June 30 + Interest expense on December 31

= $1,782,587.09 + $1,782,587.09

= $3,565,174.18

Otras preguntas